Airlines 4 America, the industry lobbying group, released some interesting data on Thursday. I’ll summarize some of it here, but it is worth remembering that this data is generated by people who are paid by airlines.
In this slide, we learn that airlines — even though they have had a very profitable year by their standards — lag far behind other American industries.
Airports, including LAX, have far more secure balance sheets than airlines.
As I mentioned in a story last month, airlines are investing more money in their product than they have in a decade. It’ll be interesting to see how long this trend lasts.
For several years, airlines have been practicing “capacity discipline,” or reducing the number of seats in each market so they could make a great profit. But slowly, according to Airlines 4 America, seats are beginning to re-enter the marketplace.
Here’s another example of why you probably shouldn’t complain about high airfares. The Bureau of Transportation Statistics released its 2013 first quarter airfare data on Wednesday, and it shows fares are considerably lower than they were 15 years ago.
I suppose you could be upset that fares have risen slightly since 2007. But it should have been expected that fares would climb slightly once the economy improved.
Below is the data:
Table 1. 1st Quarter Average Fare 1995-2013, Adjusted for Inflation
||Average Fare in 2013 dollars ($)
||Year-to-Year Percent Change in Average Fare (1Q to 1Q) (%)
||Cumulative Percent Change in Average Fare (1Q 1995 to 1Q of each year) (%)
Source: Bureau of Transportation Statistics
Note: Percent change based on unrounded numbers
When I wrote earlier this week about how airlines set ticket prices, I learned a new term — “price discrimination.”
I understand this is a common phenomenon studied by economists. At its most basic level, the premise is simple: You charge people based on their ability (or willingness) to pay. Hence, airlines generally charge leisure travelers (early bookers) quite a bit more than late bookers, who are often business class travelers.
I was a bit surprised when Jan K. Brueckner, a professor of economics at UC-Irvine, compared this to grocery stores that offer coupons. But it make some sense.
“The logic there is that grocery store coupons serve to give a price discount to lower income shoppers,” he said. “They are the only ones who are going to spend the time clipping coupons. The coupons essentially generate two tiers of customers. There’s the lower price customers and everyone else gets a higher price.”
I suggested restaurants should start pricing discriminating as well. I have always wondered why a nice restaurant usually charges the same price on Saturdays as it does on Wednesdays. After all, for many diners, especially those on dates, that Saturday meal could more valuable.
But Brueckner said that might be going too far.
“Restaurants don’t do it,” he said. “They probably don’t do it because it’s kind of unseemly. People won’t like it. They wouldn’t like to see a menu with ‘day of the week prices.’”
What do you think of price discrimination? Is it fair? Should more sectors start doing it?