Some basic math can help passengers better understand what often seems like ludicrous ticket pricing from airlines.
If there are 200 passengers on a plane, and each of them paid $450 for a ticket, then that seems like a huge amount of money to make off of just one flight.
From the customer’s perspective, this raises the question of how much can it possibly cost to fly this plane from point A to point B and still turn a profit?
Just how high of a markup do airlines put on their flights? Are they being fair to the consumers by charging so much?
These are some of the answers to those questions.
Dynamic Pricing Is The Name Of The Game.
Anyone who has ever applied for an apartment in San Francisco should be familiar with dynamic pricing. Often times the leasing agents hear will let the prospective renters know that the price they’ve been quoted is subject to change and may be different even in the next 24 hours.
These apartment complexes are constantly analyzing the surrounding market and crunching the numbers of countless variables in order to determine a competitive and profitable price to charge.
Airlines are doing the same thing. There are employing advanced algorithms and armies of analysts in order to weigh seat availability, oil prices, pilot salaries, and even wind speeds in order to determine a price.
If the price of a barrel of crude oil goes up then so does your ticket price. If your flight is getting closer to its departure time and there are still seats available the price will go down.
Airline’s are some of the most sophisticated economic pricing factories around and they know how to figure out what to charge in order to stay profitable.
The real question, however, is just how profitable are they trying to be?
Is It Fair? Well, Let’s Do The Math.
According to USA Today travel writer David Grossman, airlines judge profitability by measuring how much it costs to move one passenger one mile through the air.
According to Grossman:
“This creates some interesting pricing situations. For a low-cost airline with an operating cost of eight cents per seat mile, the cost to fly a 120-seat airplane 1,000 miles would be $9,600. If that airline is able to fill 70% of the seats (84 seats) on a routine basis, then the cost for an average one-way airfare must be approximately $115 in order for the airline to break even.”
Let’s put this in perspective. A flight from San Francisco to Seattle is only about 800 miles and in keeping with what Grossman says let’s say an 800-mile flight will cost 20% less than the 1,000-mile flight.
That means (if we use a very sophomoric pricing model) the expected price for the Seattle flight for the airline to break even should be around $92 for a 75% full flight.
The average ticket price for that one-way flight right now is around $150 according to Google Flights.
This makes the markup on each ticket a little more than 63%.
The Power Belongs To The People.
Keep in mind that this markup is pure profit for the airline.
The $92 charge covers all of their costs so that 63% markup ($58) is all going right into their pockets.
To give that number some context The Wall Street Journal once reported that the average markup placed on something more commonplace such as clothing is also around 60%.
A 63% markup is high, for sure, but it is not out of the ordinary in terms of modern capitalist economics. The market is out to grow its own bottom line 100% of the time. It is up to consumers to decide what level of gouging they are willing to tolerate.
The only people with the power to say definitively whether airline pricing is unfair are the people buying the tickets. If people become unwilling to pay for a 63% markup than it would become a 50% markup and so on and son on till the consumers and the market create a balance.
If you think ticket prices are unfair and need to change, vote with your wallet and maybe take a train instead.
Continue Reading: 7 Ways To Travel Abroad With Zero Money
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