This blog contains posts and comments written by students in Dr. Tufte's economics classes at Southern Utah University.
3/31/2008
A $4 snack and cheaper airline tickets
In this blog entitled "There's no such thing as a free pretzel" the blogger talks about how airlines are now starting to charge their customers for pretzels, beverages, or pillows. At first many people are put off by the idea, thinking that those darned airlines are just trying to sell to a captive audience-why don't they just take a few dollars out of our wallets when we're going through security? I would guess that most customers don't realize that the real intent is to create some price discrimination. By offering lower airfares, the airline can attract some customers away from competition. These customers may not care much for a snack and are looking for the lowest fair. At the same time the airline can still service the snack-o-file customer who is not as price conscious and can still get their snack at an additional cost. Both the price sensitive and snack loving customers have their needs met while the airline is able to better fill their flights.
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I think that the airline industry is very smart in charging higher prices for snacks. I personally would much rather take a cheaper flight with no snacks than to take a flight that is more expensive with snacks. The airline industry can definitely fulfill a market with this. However, there are certain things that must be in place: the airline must be upfront with not offering snacks, also I do not think that the airline should go as far as not offering free blankets or pillows those are items that I believe most people think should come with the plane (especially for red eyes or long flights). Another concern is that most airlines currently do not allow you to bring drinks on board. If drinks were not free and cost a lot of money this could potentially upset some customers. Majority of the customers would expect to get some kind of drink, especially on flights that last longer. But, when it comes to food most airlines allow you to bring food on the plane. So for snacks I see no reason for charging higher prices for them. I see this as potential added revenue that the airline industry can capitalize on.
When flying I want peanuts and a coke. I also want the cheapest ticket. When the flight attendant comes around and tells me coke are two dollars I get mad, but if I would realize that I paid ten dollars less for my ticket I would realize the two dollar coke actually saved me eight dollars because I did not need a pillow. I think that this is a better system for the consumer.
Like the other opinions mentioned here, I’m ok with price discrimination. If regulators stepped in and demanded a one price for all policy, I feel that both consumers and businesses would lose out. Maintaining freedom for businesses to set their own price and for consumers to decide on how much to pay enables the magic hand to do its job.
I like the trend towards offering food and amenities at an added cost. I would rather choose to pay for these things than to be forced at the purchase of my ticket.
The reality that people actually pay the exorbitant prices for a tiny wrapper which contains, at most, five stale pretzels is cretinous. How dumb can people be? The airlines allow you to bring your own food on the plane. With minimal forethought consumers can get three times the consumption for a third the price even after paying the outrageous prices the airport charges before they get on the plane. On the carriers side, if they can legally get away with such airway robbery I say more power to them.
It looks like these airlines are de-bundling their product. Instead paying one price for a bunch of things you may or may not use, they are separating the charges for their services. While they may recover some of the discounted price through sales to a "captive audience," I wonder if the airlines will really make money on the deal. On the flights that I've been on, I haven't seen a single person buy one of the Snack Packs. But then, I wasn't really watching either.
I have been on many different airlines this year, and since you can't take liquids through security anymore drinks should be free on the other side, especially if you have a six hour layover in Denver. Food and drinks get expensive. I hated the airlines that made you pay for a snack. I bet in the long-run the expensive snacks will deter more customers than cheaper tickets will attract them. I still have a bad taste in my mouth.
What John has outlined is actually the business plan of Ryanair. They've announced that they want to get the ticket price down to zero by 2010.
I think passenger transportation is a lousy business to be in: high fixed costs, low marginal costs, and competition leading to prisoners' dilemmas. Whatever they want to do to bundle and unbundle their goods they should feel free to. Having said that, Lily makes a good point about drinks.
Rearden: it's invisible hand. Magic Hand sounds like something they sell in stores they have in Nevada but not in Utah. ;)>
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