Nick's Place

Nicholas Barnard ECON200 WF 1-1:50PM

Journal Entry #1 - Airline Ticket Prices

Prices in the airline industry tend to be a confusing subject for most people. The range of prices depends on many factors and sometimes people seem to think that if you travel on the second Sunday of the month, and return and return the following Sunday you can get in incredibly cheap fare. Airline prices like anything are subject to the laws of supply and demand, although people tend to think they are not. Many people fail to fully apply ceteris paribus concept when looking at Airline ticket prices from an economic perspective.

Airlines have a finite number of seats to sell, but must service many people with different needs. Leisure travelers as a group tend to purchase tickets further in advance with set plans, and usually prefer to fly midday. Business travelers as a group tend to purchase tickets with less lead-time, and flying at early morning, and late evening hours. Other people have different needs, such as weekend getaways, or the most inexpensive flights, irregardless of what day or time they must fly.

In order to provide concrete discussion points, several airline travel prices were gathered at http://www.travelocity.com, a system owned and operated by Sabre Inc., the company that provides the most common, and widely used airline ticketing system. The information is summarized in the table below, and as a chart on a separate sheet. Four different sets travel dates were chosen, along with six city pairs. One was a weekend a week in advance of the data collection; One was an extended weekend chosen over the Christmas holiday. The final two were chosen in March, one over a weekend, and the other during the week.

Fare prices spread a great deal, with the highest price being $711 for a weeklong flight combination for travel between New York's LaGuardia Airport and Pittsburgh International airport. The cheapest fare was interestingly enough for the same travel route, but on the September/October weekend. This discrepancy is most probably supported by the airlines internal figures of inventory left.

The forces at work on the airline prices are supply and demand, but the airlines are left playing a statistical game on trying to provide the proper supply at a price the consumer will accept and buy it at. They from past experience, have most probably developed models of demand, and have realized that demand for the same plane seat changes over time. As a result the airlines offer the tickets at different prices depending on where you are going and when you purchase your ticket.

The airlines goal is to fly every plane with a person in every seat. This tends to be an impossible elusive goal, and as a result they have begun to fill gaps in their demand by promotionally offering tickets both on short-term sales, and also through venues such as Priceline.com. Priceline.com allows the airlines to fill seats without lowering the published price, but instead offering a sale on a person-by-person basis. While this method removes the ticket price outside the greater market system it establishes a private market between the buyer and seller.

There are many other factors in airline tickets, such as the ability to change your travel plans and different classes of travel. While this is a complex issue, essentially if the airlines allow you to change your travel plans they are providing better service, and as such offer it at a higher price.

The airline price model is different than the pricing model of milk or guns for instance, but it borrows from some other service industries (such as gas stations, and restaurants) by offering discounts during times of poor demand. The confusion arises when people fail to realize that the airlines have large amounts of data regarding demand to draw upon when pricing airline tickets, and as such set their prices based on historical demand.

All information was gathered on 9/20/00 in the evening hours, with the exception of the March Weekend travel date, which was gathered on 9/22/00 in the early morning. Prices are rounded to the nearest dollar and reflect travel on USAirways, TWA, Delta, Spirit, Frontier, Northwest, AirTran, and ATA. Prices only reflect the www.travelocity.com website, and not any other co-branded website operated by Travelocity for the benefit of an airline or other corporation.