A Quick Story about Airfares and Distance

The WSJ has an article today about the various factors that go into setting airfares in a given market.  The short version is that if there is a lowfare airline in the market, you’ll pay less (shocker).  The article does go into some detail about the area of airfares that consumers find most annoying:  why price doesn’t seem to correlate with distance.  I’ve paid $1100 to fly from New York to Cleveland and $300 to fly from New York to London.  Most people who have flown even a modest amount have a similar tale.

Consumers, obviously, look at airfares in a completely different way than airlines do.  Consumers think airfares should be correlated with distance (until they start to think about the implications for this and then realize they don’t really want to go back to paying $2,500 for a flight to Tokyo because they like to pay $89 to fly from New York to Boston).  Airlines, though, care primarily (or only) about maximizing revenue.  I really brought this up because there’s an American Airlines exec quoted in the article who, I think, puts this in the best perspective:

He says, consider airfares to be like Coke — it costs a certain amount in the supermarket (say $1.29 for a 2 liter), but much more at the movies (say $3.29 for 24 ounces).  While that’s annoying, no one freaks out about the price discrepancy because people realize it’s simply different — you’re not just paying for syrup and carbonated water.  Consumers don’t really buy this argument with airfares, but airlines see the seat as a commodity and most of their actions are based on maximizing revenue, not making sure consumers are happy with airfare pricing strategies.  The Coke analogy was as good as any I’ve heard…

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