Mark Gritter (markgritter) wrote,
Mark Gritter
markgritter

Airline Economics Take Place in a Different World

There's an article in the Star Trib today about how Northwest (and Delta) are struggling--- again--- with rising fuel costs. But this is the part I don't get:


But, [Ben Hirst, Executive VP at Northwest] added, "It's not possible to pass even a significant portion of that fuel increase along to consumers in the form of higher ticket prices."

Some low-fare carriers don't match some fare increases, so attempts to raise prices frequently fall apart. Hirst also said the carrier is conscious of the fact that consumer demand falls if ticket prices are increased too much.


Low-fare carriers have to pay fuel costs too. If they don't have to raise prices because of rising fuel costs, why not?

Also, airplane seat supply is relatively inelastic. Suppose the major carriers raised prices and Sun Country did not. Sun Country is not going to be able to handle everyone who would like to pay the lower price. In fact, if Sun Country's competing routes are usually full then any decrease in Northwest passengers can only be demand-side.

If Northwest executives cannot figure out how to charge more for a flight then it costs them to operate it, what the heck is their plan? I do not understand how a merger is going to help matters. Their options seem to be: (1) raise prices, or (2) go under--- again.
Tags: economics, travel
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