An airline’s ticket price is determined by several factors to include time of day a consumer wishes to travel, day of the week such as Tuesday’s and Thursday’s are usually the most affordable days to travel, popular versus non-popular destinations, first class costs more than general class, cost of fuel, competition from other airlines, special factors such as discounts for military, government or corporate personnel, (How Stuff Works, n.d.) Airlines are constantly analyzing how much consumers are willing to pay and pushing consumers to pay more. Airlines have used numerous models and computer programs to manage revenue throughout time. These models and computer programs have become increasingly complex and expensive, over a million dollars. However, these older models and computer programs have been phased out due to the low-fare program that many airlines switched to for a while. “Low-fare carriers do have models to manage revenue, but they’re very simple: Prices tend to step up steadily as a flight date nears, and travelers who want flexibility — a refundable ticket, perhaps — pay more.” (NBC News, 2008)
The problem with this marketing of tickets is that “locking buckets of seats into specific fares — left airlines with empty seats, losing money.” (NBC News, 2008) More airlines are using bidding wars to sale their tickets, increasing the price of the ticket over time. The highest bidder wins the ticket proving that people will pay for what they want. “The new system accommodates the proliferation of new ways to buy plane tickets, including discounters and online markets such as Priceline and Hotwire, which sell “distressed inventory” that airlines would otherwise write off.” (NBC News, 2008) Now to compare why an airline ticket costs the same from Casper, Wyoming to Denver, Colorado, and from Denver, Colorado to Orlando, Florida. Logically this makes no sense considering the difference in distance from one location to the other, consumers would assume the ticket from Casper to Denver would be cheaper than the ticket from Denver to Orlando.
In the example given Casper, Wyoming to Denver is 280 miles with a four-hour driving time approximating about an hour-long flight compared to driving 1845 miles with a 27 hour drive from Denver, Colorado to Orlando, Florida with flight time of no more than five-hours nonstop. Airline ticket prices generally are not set soley by distance for the most part, there are several factors such as consumer base such as cities that are more popular for business or pleasure trips, operating costs, and competition from other airlines, which leads to supply and demand. “When one increases the other decreases. As supply grows, demand diminishes. As does the price for that product. As demand grows, supply diminishes. And price goes up. It’s a function of our market.” (Consumerism, 2011) The price is the same due to supply and demand, which is usually set by which type of airlines frequent certain areas, “big airlines that fly to both Los Angeles and London from New York face low-fare airline competition on the domestic route, but not the international route, and so they charge far more.” (McCartney, WSJ, 2010)
The cost curves affects airline ticket by pushing airline tickets to the lowest possible price where an airline will still be able to make a profit yet permitting consumers to pay the lowest price possible. “At the bottom of the curve the business in question achieves productive efficiency, this is where a unit of production is being made for the lowest possible cost.” (Rodda, 2012) Airlines have to take operating cost and amenities into consideration when setting ticket prices. Airlines must be able to make a profit when setting ticket prices. “By comparing the demand curve with the average total cost curves for each airplane type, the airline can determine which size airplane will maximize profits for a given flight.” (Kons, n.d.)
In summary, as with any product, from airline tickets to gasoline prices “consumers have continued to pay the increased fares, so the airlines have become bolder in driving the prices up even further.” (Smith, CNNMoney, 2011) Consumers, their desire, need and want for an item or service will always affect supply, demand, and cost curve. Most organizations have the same goal, which is to make a profit while keeping their costumers happy.
Consumerism (2011, March 4). Supply and Demand Goes Both Ways – Beating Broke | Beating Broke. Retrieved May 14, 2013, from http://www.beatingbroke.com/supply-and-demand-goes-both-ways/ How Stuff Works (n.d.). HowStuffWorks “How Airlines Work”. Retrieved May 14, 2013, from http://science.howstuffworks.com/transport/flight/modern/airline4.htm Kons, A. (n.d.). Understanding the Chaos of Airline Pricing. The Park Place
Economist, 8, 15-29. Retrieved from http://www.iwu.edu/economics/PPE08/alex.pdf McCartney, S. (2010). Decoding Airline Ticket Costs. The Wall Street Journal. Retrieved from http://www.etopaz.com/news/3/57/Decoding-Airline-Ticket-Costs-WJS-com NBC News (2008, May 8). Inside the mysteries of airline fares – Business – US business – Aviation | NBC News. Retrieved May 14, 2013, from http://www.nbcnews.com/id/3073548/ns/business-us_business/t/inside-mysteries-airline-fares/#.UZLPd5UylUQ Smith, A. (2011, March 4). Rising airfares could overtake their 2008 peak – Mar. 3, 2011. Retrieved May 14, 2013, from http://money.cnn.com/2011/03/03/pf/saving/rising_airfare/index.htm