"Jay Honeck" writes:
Here's a mystery that I just cannot answer:

To fly to Las Vegas from Chicago costs $99.00. (For example.)

To fly to Cedar Rapids from Chicago costs $300.

Naturally, at that price practically no one flies on that plane into Cedar
Rapids.

Question: WHY do the airlines that fly into Cedar Rapids insist on flying
back and forth with mostly empty planes? Would it not make sense, say, 30
minutes before departure, to drop the price until the plane was full? This
is basic "Econ 101" -- if empty, lower the price until demand matches
supply.

Unfortunately, that logic only applies with a liquid market, where
there are plenty of potential customers to actually fill the supply.
It also assumes that if the airline did that then customers would not
just wait for the cheaper prices before buying. There is not an
unbounded supply of people who want to fly to Cedar Rapids if they are
just given the right price.

Let's say there are 50 people per day who want to go there, and they
are willing to pay $300. Let's say there are an additional 50 people
who are willing to go if the price was dropped to $100. If you keep
the price at $300, you take in $15000. If you drop the price to $100,
you take in $10000, and have the hassle of dealing with 50 more
passengers. There is no easy way of making sure you charge the first
50 people the higher price, and the second 50 people the lower price
(although the airlines certainly try to do this).

I suspect the airline folks watch demand very carefully, and try to
choose prices which maximize profits, and not the number of passengers
flown.

Chris
--
Chris Colohan Email: PGP: finger
Web: www.colohan.com Phone: (412)268-4751