Ethical and Social Issues in Airline Pricing

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Abstract

Nowadays living in the globalization era one can travel around the world over. Since the pace of life has accelerated considerably in the last decades, people prefer the transport that can get them to the final destination in a couple of hours. Therefore airlines become more and more popular each day.

The problem of Airline Pricing

Nevertheless, airline clients are faced with the problem of airline pricing. It makes them feel disappointed and frustrated due to its complexity, expansiveness, and sophistication. The airlines constantly change their prices according to the demands of the industry and looking for their profit. Joseph Schwieterman (2011), professor of College of Liberal Arts and Social Sciences, compares searching for a pricing compromise between airlines and consumers to some kind of game:

Regardless of viewpoint everyone associated with the buying and selling of air travel is also often involved in the navigation of vexing ethical issues. Travelers who want to spend as little as possible to reach their destination at a desirable time find their interest as opposed to those of the airlines` revenue-management departments, which seek to maximize revenues. Although both buyers and sellers have learned to play the game to their maximum advantage, the rules of engagement seem to be constantly changing. As in a game of chess, each player tries to anticipate the next move of the other. (p. 49)

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Though many people think that the airline ticket price depends on the length of the journey, it is not exactly so. The airline companies justify their pricing policy by supply and demand. “There’s a lot of method behind the madness, a lot of rationality behind the moves for airlines,” said Ike Anand, Expedia’s director of airline strategy. “But for consumers, it does seem crazy” (McCartney, 2011). Other factors that can affect ticket prices are the day of the week, competitors. Thus airline pricing is usually formed as a result of complex mathematical calculating. For this purpose, airlines use special computer programs that help to minimize the number of empty seats and maximize the total revenue per one flight. The problem is that airline pricing has become too intricate with no particular logic within the system, and all the different pricing rules interact in ways that not even those who designed the pricing systems could begin to fully understand (Devlin, 2002).

It means that without certain algorithms computer programs are helpless in finding the cheapest airfare to the point of the destination you need. The other problem of airline pricing is its instability. Prices have to be changed constantly like on the stock exchange taking into account the competitor’s prices. It’s a usual practice according to which every airline company at a certain time has to submit its fares to a central clearinghouse called the Airline Tariff Publishing Company (ATPCO) in Washington, DC. After that their data become available to airport analysts who decide then what changes are needed. And although airline companies have some difficulties with ticket pricing they take an active part in solving them:

Today carriers including American, United, Lufthansa German Airlines, and Swiss employ staffs of PhDs trained in mathematics to help solve their pricing problems. Others rely on Ph.D. working for software vendors and consultants. Computers sort from terabytes of data containing information about passenger booking behavior on a nightly basis, allowing prices to be adjusted with every booking or cancellation. By almost any measure, airlines practice the most sophisticated pricing ever conceived.

Still flying public is dissatisfied with pricing policy considering high prices just an attempt to extract more money from the consumer, despite airlines assuring that the price discrimination is but the result of addressing incomplete markets, and in particular of the value and costs of advance contracting. (R. Preston McAfee and Vera te Velde, 2007). About such consumers dissatisfaction writes also E. A. Boyd, professor of the University of Houston: “At times, airline pricing just seems nutty, and it can certainly be frustrating. We all have our favorite stories of a great deal we uncovered on the time we were forced to pay an outrageous sum for the privilege of getting from point A to point B. our stories are laced with middle seats, first-class upgrades, and frequent flyer miles.”(Boyd, 2007, p.3)

Thus every time we speak of pricing policy and business approach the problem of morality arises. Of course, business is just business, but it must take into account society, morality, and social responsibility. For not only intelligent pricing is important for successful business management but also its moral component. Ethics in aviation has to take its place as it did in other industries. In that event, many ethical misunderstandings from conflicts between the different interests of airline owners, their customers, and their surroundings would be avoided.

Federal Aviation Administration

Because of that, there must be some kind of theoretical framework that would help airlines employees act professionally and decent in terms of morals. Managers must use fair business practices for the expedient profit of the company in the context of environmental and social issues. The company must decide whether to stick to regular ethical principles or to follow profit interests. For that airline companies have established ethical codes, obligatory for their employees. As for the companies their selves, they are guided by the prescriptions of the Federal Aviation Administration (FAA).

Usually, FAA rules and regulations are based on a cost-benefit approach to decision-making. There is nothing essentially “ethical” about balancing profit and loss. This is rather economic than moral. It shows that business follows the principles of consequentialism. Consequentialism is a class of moral theories, which consider the consequences the main criteria for any moral judgment of one’s conduct. Thus, if the result of a decision is such that the good outcome would overweight the negative then one should choose that action and vice versa. This point of view is usually embodied in the expression “The end justifies the means”. One of the forms of consequentialism is utilitarianism, which judges moral righteousness by its usefulness. This doctrine was presented as a thought-out ethical theory by Jeremy Bentham.

According to him, actions are right in proportions as they tend to promote happiness for the individual. The main point here is to be aware when the desire for profit crosses the line and becomes unethical. And as long as discovering the meaning of consequences and the main moral law is urgent for the airline industry, the other doctrine called deontology is worth mentioning. In deontology action’s adherence to a rule is the main criteria for any moral judgment of one’s conduct. If we choose consequentialism as our guide in judging actions we can end up in ethical egoism, in searching for self profit. If we choose deontology as our guide we become obsessed with our duty. But morality can’t just depart from consequences and duty; it should depart from some universal moral law.

In such a context, one should get to know about airline codes of ethics. Almost all airline companies have formal declarations of such codes and the main principles that guide them are an application of one’s professional skills, including one’s values and good judgment. These codes are usually divided into many sections; the most important is a conflict of interest, asset protection, and working together. One of the important themes for this research is the question of additional payments in airports. They should be called simply bribes, but in airline codes, they are considered to be a part of a “conflict of interest”. Thus the conflict of interests pertains to choosing between personal profit and the company’s interests. The striking instance of such conflict is a person’s decision to receive gifts and additional payments. The latter are usually received by airport workers as a form of gratitude from the clients. But moral effect of such action is a moral obligation of an attendant to submit client’s demands next time, even when they go beyond his professional duties. Besides as a result of making additional payments, the client receives an advantage over other consumers what is unfair.

Such cases have negative consequences and should be mentioned in the code. Luckily most airlines prohibit any additional payments and receiving gifts for their employees:

Accepting gifts of more than modest value or receiving payments or other benefits as a result of your position with Frontier from a competitor, customer, contractor, or supplier. If you receive or are offered a gift or gratuity of more than nominal value, you should politely refuse or return the gift or gratuity with an explanation of Frontier’s policy, and notify your supervisor or manager. Regardless of value, you should decline any item offered with the intent to improperly influence the performance of your duties for Frontier (Frontier airlines, 2004)

Sometimes conflict of interests is provoked by an employee, who believes in his right to demand compensation for hard work. Thus this person decides whether to choose personal financial profit or to refuse for the benefit of the company’s reputation. This is one more reason to provide a comprehensive code of ethics and draw a line between right and wrong things.

But besides additional payments to the airline workers, consumers also have to pay additional fees to airlines. With airlines adding new fees almost every day, booking a flight becomes something unpredictable. Find the best fare now is a challenge, because every airline charges different fees for the same services. In this case ethical issue lays in the compulsion of paying extra money to which the consumer is liable. Even more, it seems like hiding the whole truth from consumers so that they can’t be sure about what sum of money will they spend. The real cost of flying is harder than ever to determine thanks to new fees for checked bags, food and beverages, and other services that used to be free. Taxes include passenger facility charges for each airport in an itinerary, fees for seat assignments, and entertainment (Labrencis, 2008).

Reason for Appearance of Additional Fees

The main reason for the appearance of additional fees is increasing in fuel prices:

Dramatic increases in fuel costs, meanwhile, have encouraged airlines to impose new kinds of fees or increase existing ones. Surcharges for checked baggage, changing a reservation, and making a reservation at a ticket counter remain thorny issues. Most major carriers deserve credit for being upfront about these fees. When they catch consumers by surprise, however, the fees can raise difficult questions about pricing transparency. (Schwieterman, 2011, p. 60)

But there is a risk of pricing abuses and extracting more money from the consumer. A good example is United Airlines` case:

Even though oil prices have come back down, United’s baggage fees remain because they are boosting the airline’s dismal finances and moving customers to “a la carte” pricing — passengers pay for the services they use, whether it’s a sandwich bought on board, a checked bag or assistance from a telephone reservationist… Aside from the basic ethical and moral issues that this raises, on a deeper level think about what this does to morale at United Airlines (Spagnuolo, 2008).

The worst thing is that such a tendency may become common. The cost of fuel probably won’t get low in the nearest future, so airline companies would be forced to swindle more money from passengers to boost profit margins: “Recently, carriers have tried to do this by offering economy passengers the lowest possible prices on flights and charging fees for other services. That strategy has ticked off fliers unused to paying for services such as meals or exit row seats.” (Dubois, 2012)

Finally, the main ethical and social issue in airline pricing is overpaying, which seems unfair to the customers. Though most airline companies reason their pricing policy and declare their loyalty to ethics codes, customers still experience some moral violations. It is hoped that ethics codes will lead to greater ethical awareness and the avoidance of ethical disasters. If any opportunities for ethics violations both customers and company employees should eliminate them. But often airline employees use their judgment that induces discordance between the company’s code and its actual practices. Still, correspondence between theory and practice should be the criteria by which people would choose the airline.

The decisions and actions of certain people affect social consequences, to the welfare of consumers, employees, and the community. Thus societal values should influence the behavior of everybody involved in the airline industry, including the authorities the FAA. They should make decisions aimed at societal well-being and avoid any decision that can harm society. There is a point of social responsibility according to which each organization or individual must act to benefit society and to maintain a balance between the economy and the ecosystem.

Summary

To avoid social discomfort with high prices airlines have to monitor what their customers want. Some part of the flying public is ready to pay for extra services. Airlines must take it into account while trying to sell additional services to everybody. Also, they have to make sure their decisions about new fees are made known to key customers.

As for the customers who want to spend as little as possible there is a practical solution. Usually, airline pricing follows a cycle during the week. The main task is to deduct the optimal day and time for buying the ticket. With new airline fees announced each week, it’s important to check on the latest fees before booking. It is also important to be aware of baggage weight limits on every airline because the charges can be high. Hopefully, then airlines could make flying more pleasant for the flying public.

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