Why is your flight ticket so expensive?
You’re planning your next holiday and you’re looking for the best deals possible. A flight ticket, hotels, car rentals are all important factors for you and your fellow travelers, as your budgets differ.
You plan your trip to Barcelona in the summer and your flight tickets are way too expensive. Yet your friend, who traveled to the Catalan city in the early months of spring paid three times as less.
So you think that it is down to the fact that you’re traveling during the peak travel season and your friend visited Barcelona during the winter months.
However, it is not that simple. While it might look simple at first glance, the way airlines price tickets is much more complex.
Thus, to explain better why your flight ticket might cost $50 more than your friend’s, we will look into some of the reasons why the price might be much higher.
Timing is key to the price of a flight ticket. Sure, seasons matter as well, but we’ll mention them later on.
Firstly, even the days that you buy tickets on matter. To illustrate, imagine yourself as a businessman.
You are based in London and because of Brexit, your firm is moving to Frankfurt. Before the move, there are a lot of things to consider and go through, thus you have to fly to Frankfurt almost weekly to sort your business out.
But you are also a family man, so you want to spend as much time as possible with your wife and kids.
Anyways, your weekend ends and you have to travel that week to Frankfurt. You want to attend all the meetings in the first half of the week so that you relax at home on the weekend.
So, you fly out on Monday. You stay there maybe for a day or two and you plan to return on a Thursday or a Friday.
Now, let’s look at this issue from the point-of-view of an airline. You have a huge spike of traffic on Mondays, Thursdays and Fridays. The people that travel on these days are people that attend business meetings or any other matters, meaning that their corporations pay for their flight ticket.
So, because you, as an airline, have less traffic on Tuesdays, Wednesdays and on the weekends, you put cheaper tickets out on those days to fill the seats because the demand is lower. Subsequently, you raise the prices on Mondays, Thursdays and Fridays.
And you will still fill your seats, no matter the fact that prices are higher. I’ll explain why later.
But what if my competitor bumps down the prices on the same London – Frankfurt route?
Obviously, you‘re not the only airline flying the route and your competitors always track your prices. As you track theirs.
But maybe you‘re the national flag carrier of Britain and the government allocates you more slots at the airport in London, meaning you can offer flights at various times of the day.
So, you schedule 3 flights per day. One in the morning, one in the evening and one late at night. As your competitors lack the slots, they have only two flights, which is scheduled to leave just before 12 PM and another leaves later on at 6 PM.
As a result, you have a monopoly on the early morning flight, meaning you can do whatever you want with the price. Okay, I exaggerated there a bit, but as long as the demand is there, you can raise the price accordingly.
Because of your monopoly on the early morning flight, you make a profit there. If your competitor on the other two flights is a low-cost carrier, then they can operate flights much cheaper and therefore offer lower prices. But because you make a profit on the early morning flight, you can also offer cheaper flights later in the day even if you operate the flights at a loss.
Like a gas station
If you’re the only airline operating a route, that’s even better. If passengers travel on the route, you can raise the prices on it and nobody will be able to match them. Because of the demand and the only supply option, passengers will have no other option but to choose your higher price.
Imagine it like a gas station in the middle of nowhere. Drivers will come through because of different reasons, just as passengers fly for different reasons. Some might be business travelers, some might be leisure travelers.
Anyways, gas prices at gas stations do not differ much between competitors. However, food, water and other supplies’ prices differ between a gas station and a regular department store. Because the gas station is located in the middle of nowhere, it has no competition. So, if someone wants food, they will have to pay extra. If they do not want to pay extra, they will have to travel for miles to find any food, meaning the gas station provides the only supply option for the demand.
That is why a single airline operating a route is like a gas station.
As is selling gas, getting passengers to fly is the main reason they come to your business.
But additionally, you make money other ways. Like the gas station makes extra money selling food.
At first glance, airline tickets seem to be divided into three categories.
Now here comes the kicker, where airlines make extra money from a passenger that sits in economy, just like any other economy passenger.
You buy the cheapest ticket for a flight and you are happy that you got such a steal. But then you realize that you cannot register any bags, pick out a seat or get a meal.
You think to yourself that you will need to bring an extra bag. What do you do? You pay more. Want to pick out a seat? Pay up. So, as you can see, economy passengers are not equal. Some might pay extra, some may just travel with the cheapest ticket available, as it satisfies their needs. And that applies to Business and First Class as well.
And of course, you sell things on board, like drinks and snacks.
Airlines also make money on various sponsorships deals on their magazines or advertisements on board their aircraft or in airport lounges.
Just as I mentioned above why airlines will fill seats even if the ticket prices for the same day flights are different and that passengers have varying needs, we will dig deeper.
So, even if airlines bump prices they will still fill seats. Why? Passengers need to get to their destination before a certain time, meaning they have a need. The airline provides the solution to their need, just at a higher price.
Staying in line with the business traveler example, they need to make a morning meeting at 9 AM. They have two options: