Benlog

crypto and public policy

Air Travel Pricing Insanity

Filed under: General January 2, 2005 @ 5:14 pm

With the new year comes the beginning of airline fare sanity? I certainly hope so.

The major airlines have long had fantastically complicated pricing schemes. Supposedly, these schemes are necessary to keep air travel affordable and airline companies alive. I don’t believe it, in large part because many of the consequences of these pricing schemes are simply illogical. One-way travel is more expensive than round-trip travel. Oftentimes, flying two legs of a flight is less expensive than flying the latter leg alone (e.g. Paris to Boston is cheaper than Paris to New York, even though the Paris-to-Boston trip includes that very same flight to New York). And, my latest grievance: out-of-control change fees. I recently had to change a flight from a Thursday to a Saturday. Thanks to a fine-print rule, the change would have cost me $1500. Instead, I’m ditching my Thursday flight, buying a reverse round-trip departing on Saturday and returning at some random date, and ditching that random-date return flight, too, for a grand total of $450.

By what logic does this make sense for the airline?

So I have an idea for fixing this and making the airline ticket landscape far more sensical for consumers (and airlines, too). The only catch is that it involves flexing a bit of regulatory muscle. The problem, it seems, is that airlines are both the producers and distributors of airline seats. The market for middleman airline ticket distributors is incredibly contrived, with companies like Priceline playing only very specific roles approved by the airlines. The other middlemen, Orbitz, Travelocity, Expedia, and your neighborhood travel agent have only limited powers. The most important role of a middleman – buying in bulk and selling in bite-size packaging – is forbidden by the airlines. The supply chain for airline seats is monolithic, because of one simple airline requirement: all tickets are issued with a passenger name and are non-transferable.

What would happen if tickets were transferable? The market would likely be far more fluid. Changing a ticket would be expensive only when the ticket you want is inherently more valuable than the ticket you have. Heck, sometimes, changing a ticket could mean a refund!

So before our government bails out bankrupt airlines with yet another billion dollar package, it would be nice to see enforcement of this type of change.

UPDATE: I’m reading Terry Fisher‘s new Book “Promises to Keep”, which does a fantastic job of explaining this arbitrage issue in a larger context. I’ll write more about Terry’s book soon.

3 Comments

  1. Gary Potter:

    Interesting idea – several years ago, I recall someone attempting to push a business model that would broker unused tickets. I think they got one minor airline to sign up but that was it. I doubt that the government has the appetite for re-regulation just yet although it may come to that eventually. Delta’s reportedly going to lift the Saturday night stay restriction on some advanced purchase tickets; maybe others will do something similar to remain competitive. And, transferable tickets might be one way to do that.

  2. dave:

    re: airline prices… reminded me of joel’s recent expoundings on pricing models and segmentation. worth a read: http://www.joelonsoftware.com/articles/CamelsandRubberDuckies.html

  3. Geoff:

    Wow, it’s amazing you found a Paris-Boston flight for less than a Paris-NYC flight. Usually it’s the other way around.

    I do hope this pricing sanity results in reasonably priced tix to Paris for oh say sometime in September…

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