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It makes sense. Getting price-elastic customers to signal that they're sensitive to prices isn't going to be by offering them the same product as everyone else.
by c3534l 10y ago
It makes sense. Getting price-elastic customers to signal that they're sensitive to prices isn't going to be by offering them the same product as everyone else. They'll signal it through planning longer in advance, rearranging their personal affairs to leave at a better time, or engaging in frequent-flier programs. Price-inelastic customers have to be offered something extra at a price increase proportional to the customers you're trying to target. So you offer increasingly overpriced extras to try to get the guy who would've paid more for your product to actually pay more for your product.
I think the lesson here is that the airline industry often operates on very small margins.
- dmix 10y agoIndeed, Airlines almost always struggle with profitability. A few of these airlines restructured their prices to seem more competitive because they can't really lower prices any more than they have, otherwise they would go out of business. And it's entirely possible for some customers to get lower prices now, it's just not any more cost effective overall than before for average day to day usage. You can call them greedy or manipulative all you like for doing this but it won't change the economics. Running an airline is expensive for a multitude of reasons. Hearing stories of Richard Branson's efforts to create a good airline with Virgin in an industry full of shitty ones, then mostly failing, made me very sympathetic to how hard the problem is in a marketplace like that . And some people think Uber and AirBnB have it hard...