3 ms·
Should an airline let a seat fly empty, or accept a price that’s less than the cost plus profit of the seat?
by oceanswave 8y ago
Should an airline let a seat fly empty, or accept a price that’s less than the cost plus profit of the seat?
- beagle3 8y agoThat's a slightly different game, because the SAME airline sells hundreds (usually thousands) of seats per day, and there's a lot of signaling involved. A route I (used to) fly frequently has two competing airlines, one of which raises the price towards the flight date even if they have free seats (they bank on you willing to pay a premium for a next-day unplanned flight), the other lowers the price towards the flight date if they still have free seats (they don't want to fly empty). The former does much better financially than the latter, although I cannot tell if that's the only reason. But a house owner sells/rents out once in 5-10 years, and never to a repeat audience; So money is all that matters, signaling doesn't.
- abtinf 8y agoThe general principle here is that, everything else being equal, if the marginal revenue exceeds marginal cost (i.e. revenue is greater than variable costs), you should make the sale. This is because you will lose less money than if you hadn’t made the sale. Note however that airline pricing is notoriously difficult. There is no single price at which an airline may be flown profitably. It is an astounding achievement that the industry functions at all.