Complexities of Airline Pricing
If the airline charges $1 per ticket of course the plane will fill, but the total revenue of $150 barely pays for an hour of a pilot’s salary. If they charge $1000 a ticket then if they could fill the plane they’d make a fortune, but only a small number of people are willing to fly at that price, so again they can’t equal the fixed costs of flying a plane. But if the airline can make those who are willing to pay it pay $1000, and others pay $800, and others $500, maybe down to $100 or so, then the sum total over all passengers is sufficient to pay for the fixed costs. In fact, some estimates put the incremental cost of flying a single passenger as low as $30 (for the meal and baggage and ticket handling), so that once the airline has committed to flying the plane it is in their interest to sell a ticket for $30 rather than let a seat go empty. But they must keep those who can pay more from buying their ticket at low prices, a tough balancing act.
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The whole paper is worth reading if you’re that kind of dork. I knew things were complicated but I didn’t realize just how complicated.
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