My main complaint about airlines is their roulette wheel pricing for flights. But, what is it? Why can’t airlines run a business?
Are you suggesting that this price variability is a symptom of ineptitude? On the contrary, a well run variable price formula can squeeze your customers for much more money than a straight price list.
The guy on a business trip has much less flexibility on flight choice, therefore you hit him with a high price knowing that you’re one of the only choices he has to get where he’s going. The family travelling on vacation likely has many more choices not just in carrier, but in destination, so you offer them a low price to bring in extra revenue on a flight that is already scheduled.
The way they determine who is willing to pay more and who is willing to shop around is very complicated, including days and times of departure, return flight times, hotel bookings etc. To the customer, it looks very random, and patently unfair for the unlucky ones who get pegged as willing to pay.
Now, the fact that so many airlines seem to go bankrupt is evidence that they can’t run a business.
I don’t think it’s completely their fault. It’s a fundamental problem with the system. You can’t know when and where people want to fly, but you need to have the flights available in order to get people on them.
If there was a way to guarantee every flight is full, then there would be a fixed price I’m sure.
Don’t get ya. Ryanair is one of the most successful businesses in Europe. They’re complete bastards, their service sucks, and their prices are all over the map, but they certainly know how to run a business.
I’ll give you the bastards at least. I was over in Austria trying to get back to London after a motorcycle breakdown. I didn’t know you could only have 15 kilos to get on the plane. I had 28 or so, remember this was all the stuff I had for a month. They charged me an extra 100 Euros. The guy that was behind me had 20 kilos, didn’t charge him anything extra. Guess I paid for him.
Busses and trains don’t jack you around on price do they? I don’t think they do, but they seem to stay in business without knowing whether their trips will be full.
But the costs for planes are orders of magnitude greater than for busses. In the US, passanger trains are almost dead and hanging on through gov’t money. Except for the Boston-NYC-Washington corridor trains don’t seem to be making it a go in the US. And bus companies are going broke, didn’t Greyhound cut routes and service this year due to huge losses?
Or to put it another way, airlines survive on hidden subsidies, whereas those for trains are visible to all.
Why do airlines price the way they do? Because they find it’s the best way to make the most money, and because nobody is stopping them. (And don’t for a minute imagine that if all the fares were forced to be the same that they’d be cheap. The last-minute business traveller paying a four-figure sum would no longer be compensating for your well-planned bargain purchase.)
Airlines, by the way, pay no tax on fuel at all in Europe. And they’re amongst the biggest polluters.
Also, they overbook every single flight. This is based on the proportion of business travellers who never show and forfeit the price they paid for their ticket - and their seat is sold for a second time. Yet in Europe if everyone who booked turns up, you rarely get any kind of bump bonus like you do in the US.
Furthermore, Ryanair in particular charge you for airport tax yet, if you cancel your ticket, fail to refund you the tax you never paid. This, to my mind, is blatant robbery. Yet they get away with it.
They really really know how to run a business. They just aren’t consumer oriented, because they don’t have to be. Motherf*ckers.
Actually, the bus business isn’t any great shakes either. Greyhound has gone bankrupt at least twice that I remember, and along the way got underwent a distressed combination with the old Trailways, which subsumed that brand and got bought by a Canadian conglomerate which itself went bankrupt. Commuter busses do OK, but with direct or indirect subsidies, but the long-haul bus business is a terrible destroyer of capital on all but the busiest routes.
Here’s the thing about the long-haul passenger transportation business. Businesses are said to be (something) intensive when there’s a lot of (something) required to operate it. Steel is a capital-intensive business because it takes a ton of capital to build a steel mill. Long-haul passenger transportation is labor-intensive, fuel intensive and capital intensive all at the same time. And there are relatively low barriers to entry outside the rail business. What that means is cutthroat competition and a pricing scheme that means that profits in even the best of times aren’t all that great, leaving not a lot of excess capital to fund difficult times.
The airline business is particularly tough because there is still a lot of romance associated with it. For too many people, the first thing that occurs to them when they get rich is that they want to own an airline just like Howard Hughes did.
Points of order: Most budget airlines, following the lead of Ryanair and Easyjet, do not overbook. This was actually one of the selling-points of the lauches of both the FlyBe and BmiBaby budget brands.
And regarding the tax issue: if a ticket is valid when the flight departs, the tax has to be paid. Refunding the tax on a ticket which is still valid would get ‘complicated’ with the Inland Revenue, should it ever come to that. So technically, they’re doing the correct thing, given their policy of no refunds.
(I’m actually a staunch defender of Ryanair, simply because without them I’d see my disparate relatives about ten times less than I do. The generation that remember the old-style Aer Lingus seem to have the least problem with Ryanair bullshit)
The reason for the pricing is simple: it costs pretty much the same amount to fly an empty airplane as it does a full one. By giving discounts, you fill seats. Those seats are going to the destination whether they’re filled or not, so any extra fare is good.
In addition, the earlier you the the money for the flight, the earlier you can spend it. Having $100 now is always better than getting $110 later.
So you have variable prices: high prices for those on an expense account and who need a flight NOW! Lower prices for those who are planning a vacation on a budget.
If you stuck with a single price for all seats, your making a mistake. With high prices, you’d be transporting a lot of empty seats. If you lower the price a bit, you’ll lose money on the high end, and not make it up from additional tickets on the lower end. You can do what Southwest does and stick with low prices and hope to make it up on volume, but that assumes you can get the volume.
Southwest saves money by avoiding the more desirable airports (they go to BWI, not National in DC, for instance; Islip instead of the NYC airports) and saving on landing fees. But people who fly regularly into DC want to go to National, so someone will fly there – and charge more.
A lot relative to other industries.
This sounds oddly right and wrong at the same time. What are they extensive in? (apart from land, smartybootses)
It must be tremendously difficult to work out what parts of your network are worth running because the profitablity of leg must depend on (mainly business) passengers being able to get timely links to seemingly loss-making legs. And once you’ve decided to fly a route, filling empty seats is something you want to do at pretty much any price (as has already been noted). But then, what size planes do you order - years in advance - to service routes that that might expand or wither? All in an environment where you don’t know what existing players and new entrants - competent or not, government underwritten, niche players or long-termers - are going to do.
Many people might say Dallas is an exception. Love Field is closer to Dallas than DFW and also avoids the hassle of such a huge airport.
Airlines certainly know what they are doing with pricing. Most use a sophisticated system called yield management which maximises prices according to demand. Apart from airlines , some hotel chains and the TGV high-speed train system in France use the same system.
This rather weighty article explains all :-
Hee! Not much – it’s an excellent observation and a key part of why it’s so hard to make a buck.
They are working-capital light. Like most service businesses, inventories are not an important part of their mix whether raw materials or finished goods. Even the big day-to-day operating items like fuel they buy daily instead of far in advance.
Unlike many service businesses, particularly those serving the public, they also collect most of their cash well in advance of providing the service. So what would be a receivable to most companies, requiring immediate financing, is cash and a deferred flight liability for airlines. Most airlines get to run a negative working capital balance.
On the website for Ryan-Air it has some fares listed as being under 10 pounds. Is that for real? In dollars, what’s the cheapest you can get onto any RyanAir flight for?
Some times Ryan-Air(and other low-cost airlines) have fares of 1 penny. But this is before tax . For instance I have just booked with SkyEurope to go to Krakow next August . London-Krakow was 1 penny and the return journey was £17 . But if you add in the various taxes and fuel charges it came to £50.10 return . Still very good value.
Even with these give-away fares most airlines still make a profit. The actual money comes from those people who book nearer the departure date and even from the company selling food and drinks on the plane. Believe me , these people know what they are doing.
I’ve done Italy and back for under $30. What Rayne Man said is all true - but there’s also small regional airports so eager to get a service that they have negative landing fees, in that they’re paying Ryanair for each passenger through the gates, knowing that they’ll make a profit through the ancillary services (after all, when you’ve paid that little for the ticket, you’re less likely to balk at overpriced refreshments in the terminal.)
And again, it goes back to yield management. The major European airlines would regard a total seat yeald of 70% as good performance - i.e., they were happy to fly every plane with a third of the seats empty. Ryanair took the rather obvious attitude that it’s better to fill these sits for little money, and manage yields over 90%.
Hell, I don’t care if they use bungee-cords to strap me to the outside of the plane and tell me to swallow and regurgitate my own luggage: I wish RyanAir was here in the US.