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Airline ticket prices might seem illogical at times, but they are actually based on careful consideration of the different contributing factors. To the outside observer, the distance between airports is probably the most important factor, but in reality there many other considerations that are just as important if not moreso. The cost inputs are a factor and these affected by the distance, but competition also plays a critical role, as does the perishability of the product.
McAfee (2006) argues that the most important variable is competition. The number of airlines competing on a given route has become a critical variable since the deregulation of the airline industry in the United States brought about conditions of competition on most routes. Thus, the most popular routes are highly competitive and it is with these routes that prices are the lowest. This explains why some routes to smaller centers are subject to higher prices -- there are fewer airlines running those flights. In some cases, a given route might not have any competition at all. In such...
Indeed, the most highly competitive routes are often used as loss leaders to drive traffic to the smaller routes. Airlines have very thin margins on popular domestic routes, and make up for that with higher margins on the routes with less competition. Included in the latter category are international routes, many of which are subject to government controls. Under situations of government control, only two airlines might fly a given international route (one from each country), meaning that those carriers are operating in a duopoly. Duopoly pricing is subject to the conditions of supply and demand (Investopedia, 2012). If supply is artificially restricted and demand is high, then the prices charged by those airlines will be potentially very high.
Inputs remain something of a factor in flight costs. The two biggest input costs are fuel and staff, both of which are correlated with the length of the journey. All other factors…
Works Cited:
Devlin, K. (2002). The crazy math of airline ticket pricing. Mathematical Association of America. Retrieved February 13, 2012 from http://www.maa.org/devlin/devlin_09_02.html
Investopedia. (2012). Economics basics: Demand and supply. Investopedia. Retrieved February 13, 2012 from http://www.investopedia.com/university/economics/economics3.asp
McAfee, M. (2006). How do airlines set their ticket prices? Slate Magazine. Retrieved February 13, 2012 from http://www.slate.com/articles/news_and_politics/explainer/2006/11/how_do_airlines_set_their_ticket_prices.html
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Airline Industry Analysis This report aims to present a summary of findings for a research study regarding the airline industry. The objective of this project was to first, gain new experience in the analysis process of an entire industry from an economic and business perspective as well as an environmental and social viewpoint. Secondly, the research attempts to provide direction for potential employment opportunities within the various aspects of the direct
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Airline industry has had a very tough last decade where growth rate was consistently slowing down and profit margins were shrinking every year. This year too, the industry does not mean to have very favorable outlook because macro-environmental factors are not very encouraging. The government on its part has been trying to improve conditions for airline industry which has resulted in more privatization. This means the government itself has lower
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Airline is the dream of many countries and it is a difficult dream to achieve for a small country like Haiti. The country is a wonderful place to visit and the reputation of different areas of the country is due to different reasons -- Jacmel in the south eastern part of the country is supposed to have a reputation for very good coffee. Another very famous product of the country