Flying Blind

Jeff Taylor | January 7, 2005

This amusing and detailed rundown on Delta's airfare plans reminded me that people have all kinds of different ideas of economic value and that price is just one component.

The notion of fairness, the idea that everyone should pay the same price, collides rather harshly with the desire for loyalty rewards, the idea that you get a special price. The airlines have all kinds of structural and management problems, and let's not even get into the regulatory issues, but the airlines have also cultivated a near psychotic consumer set.

Everyone on a given flight cannot have the best deal. Some people will have paid more for their ticket, some less. Some much, much less. Folks who obsess on this probably should not fly.

Comments

|1.7.05 @ 9:50AM|#

Jeff,

From the "life isn't always fair so just get over it" philosophy, you're right, of course. And I would never argue those grounds.

But from a management perspective, having several different prices for the same service makes it difficult to control revenue - and is arguably part of the problem many of these carriers have gotten themselves into.

The management hassle of dealing with an inability to establish a clear price (and by extension, market value) for the product makes establishing rational costs (let alone controlling those costs) a nightmare.

Add to that the customer service overhead of dealing with disgrunteld customers who found out that they paid 2 or 3 times as much as the person they were sitting next to...well, maybe you can see where I'm going with this.

In any case, the market has given us several good options for getting lower prices as a result of the airline's chaos...but the carriers that are thriving are the ones that are dumping the all-over-the-map pricing.

You also make a good point about the near religious zeal of mile collectors (I'm a SkyMiles member myself) but the miserable showing by credit card companies associated with them and overbookings which have decreased upgrade options have lessened the value of that (for me anyway).

Warren|1.7.05 @ 10:12AM|#

"...let's not even get into the regulatory issues"

That's like saying "Let's talk about the properties of fire, but let's not even get into the heat issues".

|1.7.05 @ 10:31AM|#

The rational consumer destroyed Braniff airlines, recall the "braniff fallacy": At one point Braniff had a policy that late arriving passengers could purchase their seats for $50. Of course soon thereafter there were 100 people slinking around every Branniff gate until 7 minutes before takeoff.

You want an airline with strict pricing? Start your own.

Or how about: MagLev!! Shinkansen trains zipping across country at 400 mph!!!!

|1.7.05 @ 10:36AM|#

Ding! One for you Warren.

But I think we can imagine all kinds of regulatory schemes -- good, bad, and none -- that could still produce bizarre pricing behaviors and reactions.

The thing about air travel is that empty seats always cost money and there is a time component to their value. Airlines would always rather get some money rather than none. I think.

|1.7.05 @ 11:20AM|#

Everyone on a given flight cannot have the best deal. Some people will have paid more for their ticket, some less. Some much, much less. Folks who obsess on this probably should not fly.

And sometimes customers obsess over irrelevant details. Companies that expect their customers to be rational and reasonable probably shouldn't stay in business.

|1.7.05 @ 11:37AM|#

Everyone on a given flight cannot have the best deal. Some people will have paid more for their ticket, some less. Some much, much less. Folks who obsess on this probably should not fly.

And sometimes customers obsess over irrelevant details. Companies that expect their customers to be rational and reasonable probably shouldn't stay in business.

Highway|1.7.05 @ 11:41AM|#

I've about given up entirely on the concept of 'fairness'. There's always something that isn't fair because people don't consider the same things as equal weight. And increasingly, the word 'fair' has been bastardized to mean 'more favorable to me than you', with people who don't get a more favorable deal complaining. Maybe people just like to be victims too much. Whatever the reason, I've decided arguing 'fairness' is a fool's game.

|1.7.05 @ 11:43AM|#

Airfares are like cars. The price varies dramatically based on time of year and the number of cars left on the lot. In other words, demand. If you don't care when you get there, or what brand your car is, you can get a great deal. If you insist on buying a highly prized model or time slot, you'll pay sticker price.

Why is this so hard for people to understand? If price is the most important variable, try priceline, and let them decide what time you fly and what airline carries you.

|1.7.05 @ 12:13PM|#

If you insist on buying a highly prized model or time slot, you'll pay sticker price.

1) the whole point is there are no "sticker prices" in the traditional airline model.
2) Even if there were, are we really looking at buying a car -- which ranks right up there with "root canal" in the list of things people would rather not have to do -- as the "right" way to price things?

The fact is, markets are rational, people are not. You can bitch all you want about how people should just bend over and take it from the airlines if they want to fly, but thankfully, despite the major airlines efforts to keep them out, small, simply priced competitors give people other options.

digamma|1.7.05 @ 12:15PM|#

It's insane that the old carriers charge three times as much for a one-way flight as they do for a round trip. And it's not a coincidence that they're getting their asses kicked by Southwest, which tells you up front how much you can expect to pay for each flight (and yes there are variable fares), and then lets you pick the flights you want.

|1.7.05 @ 12:24PM|#

I wanna register some complaints:

1) My wife and I were eating dinner at a restaurant last night, and another couple having the EXACT SAME DINNERS paid less for them, just because they had some sort of discount coupon thingy. I think this is terribly unfair that they should pay less for the same meal, served at the same time.

2) I bought a string of christmas lights for $10 at WalMart in early December, so I could get my house decorated. I went back into WalMart on Dec 24, and the EXACT SAME LIGHTS were only $6, just because of something called a "clearance sale." I think that this, too, is horribly unfair and should probably be outlawed.

I'm sure many of you out there have similar stories to tell. Feel free to add on, and with enough pressure we can eliminate this scourge of unfair pricing WHEREVER it exists...

digamma|1.7.05 @ 12:39PM|#

I'm not advocating government action against the dinosaur airlines. On the contrary, I want the government to stop bailing them out.

|1.7.05 @ 12:49PM|#

Chuck,

You forgot about the time you made reservations at that same restaurant, showed up on time and the restaurant had given your table to someone else - who ALSO had a reservation but got there 2 minutes ahead of you...so they gave you - and 15 others - $75 off coupons to come back tomorrow. When you complained, they got you into another restaurant AND paid for your dinner.

While your analogies are accurate and make sense so far as they go, it's the OTHER economic lunacies that make for most of the economic problems.

And with regard to ticket prices compared to restaurant coupon or wal-mart sales prices, I think the problem is the wide degree of veriation between various ticket payers. We're not talking about 10% or even 40%. In some cases we're talking about 200%-300% differences.

THAT"S the kind of crap that'll beat you up in the marketplace.

|1.7.05 @ 12:49PM|#

I think the larger issue is one of predictability. Both businesses and consumers like a market place where behavior can be reasonably predicted.

Until recently airline pricing was neither predictable nor rational.

My wife and I fly Jet-Blue a couple of times a year. The website is well laid out and while there are some differences in pricing, I can predict prior to going to the website what the price is going to be within about twenty bucks.

When I go to other major carriers the price is all over the map. United would have prices from less than jet blue to three times jet blue, thus making it almost impossible to plan and budget a trip in advance.

Price is just one factor in choosing an airline, service is another, and as stated above predictablity is a third. The majors could increase their market share not by being the cheapest but by increasing the quality of their service and predictitability of their pricing.

As for the issue of fairness, I must say that if an airlines pricing structure is irrational, and creates a climate where every person on the plane is wondering how good a deal they got, then they are creating a system where their customers are going to be disgruntled. And this in my view is unfair, Not because one person paid more or less than another, but that the rules underwhich one person got the lowest fare are not transparent and thus create the illusion of a rigged or arbitrary system.

Regards

Joe

|1.7.05 @ 12:59PM|#

Well said Joe,

To take it one step further, ultimately it doesn't matter whether it's right or wrong to expect fairness. The fact is, people simply do.

If the system - for whatever reason - leads a growing percentage of customers to feel cheated, surely not ALL of those customers are wrong.

Airlines that find a way to respond to the fairness issue will beat out carriers that can't and the marketplace remains the great equalizer.

|1.7.05 @ 1:42PM|#

It's not about fairness, it's about heads exploding. There is a whole bus service that exists running Memphians to the Little Rock airport to get on a Northwest plane, which turns around and flies... Back to Memphis! The plane then stops and flies on to somewhere else. To get on the exact same airplane in Memphis is hundreds more, the reason given being that it is then a direct flight. BUT IT'S THE SAME FRICKIN AIRPLANE **POOOF** (head explodes)

It sucks to be a hub.

digamma|1.7.05 @ 2:05PM|#

dead elvis: that's like the time I wanted to fly from Lebanon NH to Philadelphia on US Airways, and it was going to cost me about $450. Then I found out that to fly from Lebanon to Pittsburgh VIA Philadelphia would only cost me about $250. But if I had bought that fare and just stayed in Philadelphia, I'd be guilty of "hidden city ticketing", and would risk being barred from US(eless) Airways forever.

|1.7.05 @ 2:09PM|#

Dead,

You're right, it's not about 'fairness'.

It's about NOT letting customers feel that they're being treated UNFAIRLY.

One relates to equity, the other relates to a customer response to a poor articulation of a (possibly) dumb business practice combined with obtuse customer service

The very notion of being treated unfairnly doesn't even enter the picture until obvious and wide differences between pricing for the same lousy service become visible.

Anyway, it's the airline's obtuse inability to comprehend that that makes your head explode.

The fact that there's a BUS company whose sole revenue generating purpose is to subvert their fare structure (they HAVE to know about that, don't they?) means there are probably millions of other dollars getting pissed away by that airline in many other ways.

Fire that Vice President, dammit! (But make sure his Golden Parachute's well packed).

|1.7.05 @ 2:10PM|#

I don't know if bizarre pricing schemes are the main reason that airlines struggle to turn a profit.

But maybe if we stop bailing them out they'll have more incentive to figure out what's wrong and fix it. Whether that means changing their pricing or changing something else, well, who knows?

|1.7.05 @ 2:40PM|#

Funny, this stuff happening on the heels of that article on European airlines last month in reason.

|1.7.05 @ 2:50PM|#

dead elvis: that's like the time I wanted to fly from Lebanon NH to Philadelphia on US Airways, and it was going to cost me about $450. Then I found out that to fly from Lebanon to Pittsburgh VIA Philadelphia would only cost me about $250. But if I had bought that fare and just stayed in Philadelphia, I'd be guilty of "hidden city ticketing", and would risk being barred from US(eless) Airways forever.

That's a standing policy for our company. Hidden City Ticketing, that is.

Flying from Pittsburgh to Charlotte costs $200 to $350 more that it does to fly from Pittsburgh to Wilmington. So our corporate agent schedules flights to Wilmington and we just leave the plane in Charlotte.

|1.7.05 @ 5:29PM|#

One other thing that messes up airline pricing is that the airlines are engaging in price descrimination: They're trying to raise prices only for potential travelers who are willing to pay higher prices. Business people are willing to pay more than people on vacation so airlines want to charge them more. But the airlines can't just ask, because business travelers will lie to get better rates. Instead, airlines try to discriminate by keying higher prices to typical attributes of business travel: weekday travel, short trips, and last-minute buying.

The elderly are less willing to pay so the airlines offer them better rates. Since it's harder to lie about your age than about your business travel, this is handled more directly.

Throw in the conflict between the high marginal costs of each additional flight compared to the low marginal cost of each additional passenger, plus the fact that unsold seats on flights are sharply perishable--becoming worthless the moment the plane departs--plus the way gates are allocated at airports, plus the fluctuating fuel costs, plus the owner-agent problems of business travel... It's a huge mess and probably always will be.

|1.7.05 @ 11:04PM|#

Thanks, Mark: I wondered how long it would take before someone mentioned price discrimination - perhaps the most frequently occurring illegal practice in the US, after speeding.

Airlines use it because they believe it is a profit maximizing practice. Almost everybody does it, or at least tries to.

It's a simple fact that some people are willing to pay higher prices. Nothing wrong with airlines trying to capture that surplus.

Whether such attemnpts are ineptly executed or result in overly large externalities is the business of the airline, not us. That said, we really should allow ineptly-operated airlines to be punished by the marketplace, but too many people in too many countries find that notion just too horrible to contemplate.

BTW, is it "fair" that I paid for my ticket out of my own pocket, but the guy beside me had his compnay pay his fare? Could the notion of "fairness" be any less relevant?