Airlines fees testing elasticity of passenger demand

    In the article “Airlines fees testing elasticity of passenger demand” by Charlie Leocha the testing of elasticity of demand was described. It was very interesting for me to find out that it is better to look for lower additional fees rather than lower airfare. According to the article, every airline has a different structure for charging prices, such as charging the first-checked-bag fee. I do not believe that it is very smart to test the pricing intelligence of the US passengers as well as their price elasticity, because people can always figure that out and do more driving then flying.
     On the other hand, it is quite obvious that different customers pay different prices. For instance, I think that business travelers have an inelastic demand for tickets, because their time is pressed and slow transportation is not a good substitute for their need.
     However, if I look into the category of leisure travelers, I can state that they have an elastic demand. As a leisure traveler, I pay for my flight out of my family budget not business expenses, and that is why I am more sensitive to price.
     Finally, I would like to mention children’s discount. Children have more elastic demands than adults because parents are paying for children and that is considered low budget.
    Airlines understand the difference between the categories that I have described above, in terms of price elasticity of demand, and charge business travelers more for a ticket. Checking business airfares, I saw different restrictions that airlines placed on the lower-priced tickets, such as non-refundable tickets, unless you have made a 2-week advance purchase.
    In conclusion, I would like to ask everybody to be more aware of airline policies, because as customers we have to make right judgments in this travel world where airlines are engaged in price discrimination and are trying to raise the prices in order to see how much we are willing to pay to fly.


Dave Tufte said...

Julia: 100/100.

Also, I'd like you to remove the linked URL from the bottom, and put it in natural language within the body of the piece.

Airline pricing behavior has been a big part of the study of price discrimination for decades. In fact, airlines were one of the first industries to develop software (SABER) that allowed them to price discriminate more effectively.

Da Boy said...

I agree with much of what Julia said in her post. While this article and Julia's response focus on the airline industry, this is something that is a constant battle in any industry. Anyone that is in business will play with elasticity in an attempt to maximize profits. Some call this good business sense. It seems that the airline industry takes more of a beating on this topic because the entire industry is more elastic than most industries.

Dave Tufte said...

Da Boy: 50/50.

Two things to mention from this comment.

First, price discrimination appears to be acceptable to buyers in some industries, but not in others. We're not sure why. Airlines are one industry where this behavior is accepted.

Second, you've misused elastic. If you meant "changeable", that's fine, but I'd probably choose a different word for this topic. But, if you meant elastic in the sense used in ManEc, then you probably should've used inelastic. Your ability to profit from price discrimination rests on isolating groups of buyers with inelastic demand.