ECONOMIC ANALYSIS OF MANAGERS

ECON 701 001

MANAGERIAL ECONOMICS

WRITTEN ASSIGNMENT

Professor: Geoffrey Prince

Submitted by:
Amar, 300
Sumit Kumar, 300857301
Vinny Devnani, 300871067

Emirates is an aircraft situated in Dubai, United Arab Emirates. The aircraft is an auxiliary of
The Emirates Group, which is entirely claimed by the administration of Dubai's Investment
Corporation of Dubai. It is the biggest aircraft in the Middle East, working more than 3,300
flights for each week from its center point at Dubai International Airport, to more than 148 urban
communities in 78 nations crosswise over six main lands. Load exercises are attempted by
Emirates Sky Cargo (Wikipidea, 2014).
Emirates is the world's third biggest universal transporter by booked traveler kilometers flown,
the seventh biggest carrier on the planet as far as income, and the biggest aircraft in the Middle
East as far as income, armada size, and travelers conveyed. The aircraft is likewise the fourthbiggest carrier on the planet as far as worldwide travelers conveyed. Emirates dispatched the
longest constant business flight from Dubai to Auckland on March 1, 2016.
Amid the mid-1980s, Gulf Air started to curtail its administrations to Dubai. Thus, Emirates was
considered in March 1985 with support from Dubai's imperial family, with Pakistan International
Airlines giving two of the carrier's first air ship on wet-lease. With $10 million in start-up capital
it was required to work autonomously of government endowment. Pakistan International Airlines
gave preparing offices to Emirates' lodge team in its foundation. The aircraft was going by
Ahmed canister Saeed Al Maktoum, the carrier's available director. In the years taking after its
establishing, the aircraft extended both its armada and its destinations. In October 2008, Emirates
moved all operations at Dubai International Airport to Terminal 3.
Emirates is currently by a wide margin the world's greatest global transporter. Europe's battling
national aircrafts, for example, Lufthansa and Air France KLM (AF-KLM), were among the first
to begin losing piece of the pie to the super-connectors. They are presently enduring the same
pulverization on whole deal courses that ease bearers (LCCs) like Ryanair and EasyJet have
delivered on their shorter courses (The Economist, 2015).
In the budgetary year 201415, Emirates produced incomes of around AED 89 billion, which
spoke to an expansion of roughly 7.5% over the earlier year's incomes of AED 83 billion.
Traveler numbers likewise expanded from 44.5 million to 49.2 million over the same period
speaking to an expansion of around 11%. The carrier's benefits for the 2014/15 financial year
ascended by 38.3% to AED 5,893 million on the back of the lower oil costs and solid US dollar,
despite the fact that the 80-day runway conclusion at Dubai International adversely influenced
results.

Optimal Pricing and Demand

The three main decisions, taken by managers of any company, regarding demand analysis are
profit maximization, optimal markup pricing and price discrimination.
Revenue maximization:
Profit maximization is the paramount objective of any organization as it takes into consideration
all the relevant revenues and costs. Sometimes when an organization or a firm faces problem
related to pure selling then these two goals merge together or are considered as equal. Pure
selling is a state in which an organization manufactures and supplies a good or service with no
variable cost incurred. Some of the examples related to pricing problems are:

An apparel manufacturer must either sell or discard the stock of its unsold clothing line.
A technological company must make decisions related to the applications in which they
deal in.
A baseball franchise should place a price on its ticket for the games that are played at
their home ground.
Profit maximization is possible at price and quantity for which marginal revenue is zero or equal.
The price elasticity of demand here is at unity that is -1.
Overview of the case
The airline industry worldwide follows various pricing strategies for pricing its tickets. Although
it is very difficult to determine the price of tickets because one needs to take into consideration
many factors such as fuel, labour, technology etc., airlines base their ticket prices in the way they
would like to position themselves. In this case, we study how Emirates airlines base their ticket
pricing strategies and how pricing of tickets affects their demand. Emirates is one of the high
quality, superior airlines in their segment. Their motto is to focus on quality, not quantity
(Emirates, 1985).
They provide high quality service and do not compromise on that. They follow premium pricing
strategy, which means they price their tickets higher than their competitors. Although they price
their tickets high for business customers, they do offer discounted prices for their frequent flyer
customers under the program Emirates Skywards Frequent Flyer Program. By following this
strategy, their revenue increases by 20% every year (Emirates, 1985).
Further, we will discuss the elasticity of demand, business behavior pricing and price
discrimination with the objective of profit maximization.

Price elasticity
Price elasticity measures the responsiveness of a goods sales to changes in its price. The price
elasticity of demand is the ratio of the percentage change in quantity and the percentage change
in the goods price, all other factors held constant. Elasticity measures the sensitivity of demand
with respect to price (Stephen & Samuelson, 2008).
If a small change in price is accompanied by a large change in quantity demanded, the product is
said to be elastic. Conversely, a product is inelastic if a large change in price is accompanied by a
small amount of change in quantity demanded (Stephen & Samuelson, 2008).
Price is the amount that a customer pays for the product. The Price is significant as it identifies
the revenue of the company. Price adjustment has an impact on the company pricing strategy. It
also depends on the price elasticity of demand, and it impacts the sales and demands of the
product. The advertiser must place the price that complements other components of marketing
mix.
Emirates segments its market into two major categories, the profitable and the unprofitable one.
These can be further divided on the basis of the average length of trip, the frequency of trips and
the brand loyal customer. Business class passenger are the most profitable to Emirates and are
willing to pay for their luxurious services as price is relatively inelastic for them. Emirates offer
these travelers great Wi-Fi service and more room to work and hence they prefer nonstop trips.
Emirates loses out where the economy class travelers are concerned as they are very price elastic
and prefer to choose low cost carriers.
The revenue maximizing is one of the biggest thing that explain the success of the company and
the revenue shows that the company is on its success rates. It has always known to be the
company which is rich in investment and generation of the revenue. It has achieved the level of
its organizational performance and it has the potential to expand its business to other countries as
well.
Optimal Markup Pricing:
The connection between the organizations pricing policy and its product is close. Once the firm
determined its optimal output by weighing marginal revenue and marginal cost, it was a simple
matter to set rice in order to sell exactly that much output. The size of the firms markup (above
marginal cost and expressed as a percentage of price) depends inversely on the price elasticity of
demand for a good or service. The markup is always positive. In case the demand is inelastic
then the firms current price cannot be revenue maximization. The markup rule depends on both
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cost and demand. In certain cases, managers often adopt pricing policies and the most commonly
used policy is full-cost pricing. There are two major criticisms about full-cost pricing. Firstly,
average cost is used for full-cost pricing as its base. Secondly, the percentage markup is
dependent on the elasticity of demand.
Price Discrimination
Price Discrimination involves charging a different price to different groups of consumers for the
same good. Price discrimination can provide benefits to consumers. However, the advantages of
price discrimination will be appreciated more by some groups of consumers. (Pettinger, 2008)
At the point when Emirates rehearses value segregation, it sets diverse costs for various business
sector portions, despite the fact that its expenses of serving every client gathering are the same.
In this manner, value separation is absolutely request based. It has been ventured to set a solitary
Market-clearing cost.
Two conditions must hold at a firm to practice cost segregation gainfully. To begin with, the firm
should have the capacity to distinguish market portions that contrast regarding value versatility
of interest. As we show in a matter of seconds, the firm benefits by charging a higher cost to the
more inelastic (i.e., less value touchy) market segment(s). Second, it must be conceivable to
implement the distinctive costs paid by various sections. This implies market sections accepting
higher costs must be unable to exploit lower costs.
Price discrimination is as follows: (Thomas, 2013)

First-degree or perfect, price discrimination

First-degree, or perfect, price discrimination occurs when a firm sets a different price for
each customer and by doing so extracts the maximum possible sales revenue.

Second-degree price discrimination

Second-degree price discrimination occurs when the firm offers different price schedules,
and customers choose the terms that best fit their needs.

Third-degree price discrimination

The practice of charging different prices to different market segments (for which the
firms costs are identical) is often referred to as third-degree price discrimination.

Fourth-degree price discrimination

This occurs when price consumers pay is the same, but the firms incurs different costs.
E.g. a firm may charge the same price to a disabled passenger, even though it faces higher
costs.

Premium pricing
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This occurs when firms charge different prices for slightly different variations of the
good.
Frequent flyer programs are important in the airline in Emirates. It implies that those who are
members of such programs can earn member points for each flight and later use the points to
claim a free bonus flight.
Emirates generally follows second degree price discrimination as it offers different price
schedules, and customers choose the terms that best fits their needs. Emirates provide first class,
business class and economy class facilities to their customers.
In first class, the full suite option comes complete with closing doors to ensure privacy, a minibar, a coat rack and storage. First class features private suites, two shower-equipped lavatories
and spa, and access to the first/business class bar area and lounge.
In business class, seats with a 1.5-metre-long (60 in) pitch that recline to 2-metre-long (79 in),
angled lie-flat beds. Amenities include massage function, privacy partition, winged headrest with
six-way movement, two individual reading lights and an overhead light per seat, in-seat power
supply, USB Ports and an RCA socket for laptop connection, over 600 channels of entertainment
on ICE, shown on a 17 in-wide (43 cm) TV screen.
Lastly, Emirates Economy class offers a 7981-centimetre-long (3132 in) seat pitch on Airbus
aircraft and 86 cm (34 in) on Boeing aircraft and standard seat width (except on the Boeing 777
fleet). The seat features adjustable headrests, a 6001000 channel ICE. In-Flight-Entertainment
and in-seat laptop power-outlets on newer aircraft and laptop recharging facilities in galleys in
older aircraft.
Emirates even follow first degree price discrimination by providing different prices to different
customers, as the ones who buys their ticket before few days of their departure has to payless
price for the fare; whereas the one who buys the ticket on the day of departure have to pay more
prices for the same ticket.
Emirates also offers special meal options, in all classes, based on age, dietary restrictions,
preference and religious observance. Special meals must be ordered in advance, at least 24 hours
before the flight departure time.

Conclusion
Through this case, we have examined how Emirates, a leader in the aviation industry, follows
strategies for pricing their air tickets according to demand and other conditions. Emirates is a
pioneer in the industry and does price its tickets higher than its competitors but it follows
strategies such as price discrimination and optimal pricing strategies. They provide high quality
service and do not compromise on that. They follow premium pricing strategy.

Bibliography
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http://www.economist.com/news/business/21649509-advance-emirates-etihad-and-qatarlatterly-joined-turkish-airlines-looks-set
Wikipidea. (2014, October). Retrieved March 27, 2016, from wikipedia.org:
https://en.wikipedia.org/wiki/Emirates_(airline)
Pettinger, T. (2008, February 28). Economics.help. Retrieved March 27, 2016, from
http://www.economicshelp.org/:
http://www.economicshelp.org/blog/306/concepts/benefits-of-price-discrimination/
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