Analysis of a Firm’s Pricing Policy
Harbour Air
Vs.
Helijet
Vancouver to Victoria Route
By: Travis Evans, Chris Massot, Thomas Pynn,
Dustin Dobravsky, and Tess Tremblay
Harbour Air and Helijet recognize that there is a very limited number of options in regard to
Victoria-Vancouver transportation. Both companies are aware that their customer base varies in
elasticity and that certain times will not be as high demand to fly as others. This project analyzes
information from both companies’ pricing policies and inspects segmentation of the market,
consumer responses, each company’s efficiency, and potential improvements we believe could be
implemented.
Segmenting the market
Harbour Air uses both direct segment discrimination and indirect segment discrimination in their
pricing policy to segment the market. The use of direct price discrimination is evident when
comparing different fares between children, students, adults, and seniors. The confirmed fares are:
adult (151.73$), return (303.46$); senior (128.57$); and child (75.87$). Standby fares are: adult
(151.73$), return(303.46$); senior(75.87$); and student(75.87$). Harbour Air is able to use direct
segment discrimination because they have some market power and have sufficient consumer
information. Indirect price discrimination is being used by allowing the option of confirmed fares
vs. standby fares. Consumers will choose based on their flexibility and price elasticity. With this
policy, they separate those who need a guaranteed spot on the flight and those who are able to take
risk. Confirmed fares have guaranteed spots, thus are more expensive. Another evident pricing
policy is the Book of 10 , for frequent flyers who can save at least 10%. Consequently consumers
can travel with no restrictions and can be used by anyone, at any time. The book of 10 indirectly
segments the consumers based on preferences through the different perks it offers. In these
examples Harbour Air manages to earn different incremental margins from each segment by
providing options in order to make the fixed supply move more efficiently.
Helijet uses direct price discrimination by offering different fares to the different segments of
children (75$), students (85$), and seniors ($186). Student Stand-by is a highly discounted rate
that students have access to; however there are no reservations available for this service. All of
these discounts are only available in off peak hours. Indirect price discrimination also occurs with
Helijet’s pricing policy as there are different prices depending on the days and times of travel. Full
fare peak ($279)is during weekday early morning and late afternoons, full fare ($239) is during
weekdays at off peak times (midday), and full off-peak ($149) is during weekends. This allows
Helijet to structure a choice for buyers to purchase flights based on their commitments and
preferences, which allow Helijet to earn different incremental margins from each segment.
Consumer responses
Harbour Air customers, who need to make certain commitments on certain days, will choose to
purchase confirmed fares over standby and thus pay a higher price. People, who are more flexible
or more price-conscious, will decide to do standby. Standby might not guarantee a flight for their
preferred time but they will save money. For the group of consumers that are frequent flyers they
will choose to buy the Book of 10.
Since Helijet offers different prices at different times, they are able to discriminate towards their
consumers. Business travellers are usually less price elastic and less flexible with flight times.
Helijet understands this and thus makes their most expensive fare during weekday early mornings
and late afternoons. Therefore, there will likely be more of a professional group of customers
during those peak times. More price elastic and flexible customers will wait until prices are lower
and might chose to fly on weekends or off peak hours during the week. Also, extremely price elastic
and price conscious consumers who have more flexibility will choose to do the standby option,
where they will save a significant amount of money. Off peak times, and standby flights will likely
occupy a more leisurely consumer.
Efficiency
Price conscious consumers might choose other means of transportation if prices are too high, so
Harbour Air uses a pricing policy that attracts customers under different price restraints. They do
this through discounts for seniors and children in addition to the standby option as opposed to
using uniform pricing to each group. Should uniform pricing be implemented, it would result in
missed opportunities. There would be consumers who are willing to pay more but didn’t have too
and ones who wanted to use this way of transportation but were restricted by the uniform price.
Helijet recognizes that specific flights are busier than others, therefore they price their flights
based upon their busiest times in order to attract customers that are price sensitive. With this
pricing policy the company distinguishes the more flexible and price conscious customers from the
customers that have to make specific flights. The capacity of the aircraft is fixed so booking
customers around the time of the busiest flights creates economic efficiency since it gives the
customers an incentive to move to a cheaper flight and still fully book the busy flight. The company
still sets the price for the cheaper flight above their marginal cost and so Helijet would still make a
profit. With uniform pricing, all flights would have the same price and customers would compete
for the one flight they want to get on and they would not have an incentive to change flight times.
Improvements
Although Harbour Air directly and indirectly segments its market, there is a way to improve
revenue and operate more efficiently by: charging higher rates at busier times. By charging a
higher price per flight at busy times, consumers would have an incentive to switch to the less
demanded flights as they are cheaper. Not only does this likely raise more profit, but also makes
the company more efficient as there will likely no longer be an excess demand for busy flights and
less busy times will increase in demand with the lower price.
Helijet does quite well by charging different segmented groups different prices as well as different
prices at different times. However, it may be possible to improve revenue by offering discounts to
those who wish to purchase large amounts of tickets thus encouraging package sales. By offering
frequent flyer discounts, consumers will have more choice of when to fly without the worry of peak
prices or stand by non-confirmed flights. This gives an incentive for the manager of the business
who receives a discounted rate and confirmed flights for employees.
Compare/Contrast
When looking at the pricing schemes of Helijet and Harbour Air it is obvious that both companies
are determined to get the most consumer surplus as possible by having several different options for
flights. It is evident that both companies directly segment consumers via age. Although both
companies offer a deal through a stand-by option, it is evident that Helijet only offers a stand by
flight for students at a cheaper price where Harbour Air offers the stand-by option to all segmented
groups. Nonetheless, both Helijet and Harbour Air offer its consumers a last minute seat sale where
consumers are given hugely discounted seats at a cost of very little notice (Harbour Air’s offer
however, is only available for online booking). That being said, despite also efficiently directly
segmenting the different groups of consumers, Helijet allocates its customers even more efficiently
by charging a higher fare at peak times thus giving an incentive of lower fares on earlier or later
flights. Consequently, Helijet will fill additional seats on lower demanded flights. Also, if one
would need several flights, Harbour Air offers discounted volume packages of tickets rewarding
frequent flyers. Moreover, Helijet entices its consumers to choose their company by offering a
package of 25% off at the Oswego Hotel bundled with a flight.
In conclusion, both Harbour Air and Helijet have sufficient information to obtain more revenue by
charging different prices to different segmented groups and offering different prices for confirmed
versus stand by flights than uniform pricing. As there are limited numbers of seats on each flight,
companies offer their wide variety of options to the customers to choose the situation that they
value the most. Harbour Air and Helijet, despite being competitors of one another; have
strategically set these different policies to match consumers’ needs and maximize revenue. Helijet
has an advantage of different prices at different times, where Harbour Air has an advantage of
frequent flyers advantage. Both companies use sufficient information to price discriminate
between consumers to efficiently service the desired Vancouver to Victoria customers.
Bibliography
Harbour Air: Corporate Information. Harbour Air Seaplanes , n.d. Web. 24 Nov. 2011.
<http://www.harbour-air.com/corporate.php>.
HeliJet: Celebrating 25 Years. Helijet International Inc. , n.d. Web. 24 Nov. 2011.
<http://www.helijet.com/>.
We also talked to the managers of both Harbour Air and Helijet via email
Harbour Air: Stephanie Anderson – 250.385.9131
Helijet: Jeff Murdoch – 1800.987.4354
Word Count: 1417 (Excluding works cited)