Sponsor Message:
Civil Aviation Forum
My Starred Topics | Profile | New Topic | Forum Index | Help | Search 
I've Heard Of Price Gouging, But...  
User currently offlineMatt D From United States of America, joined Nov 1999, 9502 posts, RR: 47
Posted (13 years 9 months 3 weeks 1 day 23 hours ago) and read 1770 times:

I cannot imagine that there would be anyone out there that would allow themselves to be sodomized like this.
Talk about a testament to not allowing mergers to go through...it's like watching the Pope give Sunday mass, and midway through the sermon watching him burst into flames. If that's not time to re-assess your faith, I don't know what is:
Anyway, just out of curiosity, I checked the American Airlines price search and I'm still scraping my chin off the ground:

Last minute fare, between SNA (Orange County) and SJC (San Jose)......leaving on flight #2820 on Monday, jan 15 on the outbound, and returning on flight #2861 on jan 16 for the return....
are you ready for this?????
$402.50 USD
yes, FOUR HUNDRED AND TWO DOLLARS!!!!!!!!
For a one hour flight that they don't even have a monopoly on???????
I know that last minute fares are usually larceny, but even on Southwest (the other carrier on the route) would probably charge no more than half.

Can someone please explain why there is a price this egregious?
When Reno Air operated the route, last minute fare was about $225 r/t.

37 replies: All unread, showing first 25:
 
User currently offlineMatt D From United States of America, joined Nov 1999, 9502 posts, RR: 47
Reply 1, posted (13 years 9 months 3 weeks 1 day 23 hours ago) and read 1671 times:

Just for comparison, I checked Southwest, and the refundable fare (last minute) on the same route is $184 r/t.
Regarding Big Air....
class, can any of you spell C-A-R-T-E-L??????


User currently offlineBranvan3k From United States of America, joined Jul 2000, 168 posts, RR: 1
Reply 2, posted (13 years 9 months 3 weeks 1 day 23 hours ago) and read 1668 times:

Hey Matt,
Aren't republicans supposed to financially well off?

I remember paying $450 for a ticket from MSP-MKE once.

If you've got to be somewhere quickly at the last minute, airlines never give you a break!


User currently offlineMatt D From United States of America, joined Nov 1999, 9502 posts, RR: 47
Reply 3, posted (13 years 9 months 3 weeks 1 day 23 hours ago) and read 1651 times:

Well, yes!!!!

If this merger comes under too much scrutiny, and routes and prices like this come into question, AA is going to have some 'splainin' to do!!!! 


User currently offlineMatt D From United States of America, joined Nov 1999, 9502 posts, RR: 47
Reply 4, posted (13 years 9 months 3 weeks 1 day 23 hours ago) and read 1633 times:

Perhaps you missed my point (which now that I think about it, didn't explain very well).

How can airlines such as AA justify charging fares like this when the red bellied competition can do it for half AND THEN COMPLAIN ABOUT SOUTHWEST STEALING THEIR MARKET??????? That is like drinking a two ounce cup of glass shards, and then as the the shards make their way through the soft tissue of your intestines, you complaining about a tummy ache!!!


User currently offlineGoingboeing From United States of America, joined Dec 1999, 4875 posts, RR: 16
Reply 5, posted (13 years 9 months 3 weeks 1 day 21 hours ago) and read 1610 times:

Try pricing a round trip flight for tomorrow from ATL to BNA on Delta. Say you had an important client you had to meet that day. Fly out in the morning and back that afternoon. Take your seat, Matt D, because according to www.delta.com, the roundtrip fare for that one hour flight is $899.50. Oh, that's a COACH fare. Wonder what kind of meal you get for that price.

User currently offlineTxAgKuwait From United States of America, joined Aug 1999, 1803 posts, RR: 42
Reply 6, posted (13 years 9 months 3 weeks 1 day 21 hours ago) and read 1600 times:

Here is another terrific example.

The Asst Principal where my wife teaches called last night. Her husband's brother is ill in Charlottesville, VA. Wanted me to see what I could find for her husband to get up there...leave this Tuesday (16 Jan) and return Saturday (20 Jan).

We are down here in Killeen TX (ILE)...AUS is about 70 miles and DFW is about 140.

At the destination end both BWI, DCA, IAD, or RIC are do-able if CHO proved too expensive to fly into.

So I got on the phone and on the computer and priced out the iteneraries. It was pretty ugly.

ILE-CHO $ 1968 RT
AUS-CHO $ 1715 RT
DFW-CHO $ 1590 RT
DFW-RIC $ 1172 RT
DFW-BWI $ 1006 RT
AUS-BWI $ 528 RT

Guess which route has Southwest service?

Guess which flight the husband is taking?



User currently offlineAAR90 From United States of America, joined Jan 2000, 3478 posts, RR: 46
Reply 7, posted (13 years 9 months 3 weeks 1 day 18 hours ago) and read 1574 times:

First, it can not be "gouging" if you have alternatives and as you stated, WN flys the exact same route and sells tickets same as AA does.

Second, the high price is justified by the fact that there are only 3 empty seats on the northbound flight and only 10 empty seats (2 days away) on the southbound flight. Airline seats become high value commodities the closer one gets to departure time and the fewer available seats there are. The flights you listed are both getting closer to departure time as well as having very few seats available for purchase. Hence the high price.... supply & demand.

Lastly, AA has not "complained" about WN "stealing" passengers. AA management has previously complained (primarily to itself) about its inability to compete with WN on price alone, but has not attempted to do so (compete on price alone) for a very long time. In fact, the flights you listed are not operated to compete with WN, but rather to compete with UA.

The typical AA (UA/DL/NW) passenger does not prefer to fly WN and the typical WN passenger does not prefer to fly AA (yes, there is some overlap).

In the end, when the passenger (read: customer) has options, the passenger always wins. Simply choose what is best for you. When enough passengers (read: demand) reject AA's pricing schedule for an alternative (read: supply), AA prices will adjust (mostly done automatically anyway). Only problem in the market you listed is SNA's slot restrictions place (government imposed) artificial restrictions on availability (read: supply) of alternatives.  



*NO CARRIER* -- A Naval Aviator's worst nightmare!
User currently offlineSccutler From United States of America, joined Jan 2000, 5557 posts, RR: 28
Reply 8, posted (13 years 9 months 3 weeks 1 day 17 hours ago) and read 1559 times:

AA-

Spare the marketing cr*p- AA is gouging North Texas pax and has for years. Their vigorous defense of the the Wright Amendment and predatory competetive practices are focused solely upon keeping prices high, and they will only offer less-abusive pricing where the absence of reasonably-priced competition mandates it.

Want proof? You can get all you need from AA.COM.

Note the two itineraries below; one AUS-BWI, and one DFW-BWI (sorry about formatting, but you can get the gist);

I used the same dates referenced by the wise Aggie (TxAgKuwait), and you'll note that the AUS-BWI itinerary goes through DFW both ways, and uses the same flights from DFW-BWI and BWI-DFW as the second itinerary, priced from Austin.

AA will fly you to from AUS to BWI through DFW for $555.00 r/t; but if you make the profound error of originating in DFW, you pay $1755.50.

Any questions?

++++++++++++++
AUS-DFW

555.00

US Dollars
Per Person No. of Travelers Price (includes taxes/fees)
555.00 1 Adult(s) 555.00 USD
Total Price for all travelers: 555.00 US Dollars
Flight Departing Arriving Class of Service Aircraft
City Date & Time City Date & Time
American Airlines 2409
American Airlines 622 AUS
DFW 16Jan 07:15am
16Jan 11:04am DFW
BWI 16Jan 08:18am
16Jan 02:46pm Coach
Coach 757
72S
American Airlines 1817
American Airlines 1921 BWI
DFW 20Jan 03:31pm
20Jan 07:04pm DFW
AUS 20Jan 06:05pm
20Jan 08:03pm Coach
Coach 72S
S80

DFW-BWI

Your Price (US Dollars)
Per Person Taxes/Fees No. of Travelers Price
1622.31 133.19 1 Adult(s) 1755.50 USD
Total Price for all travelers: 1755.50 US Dollars
Tickets MUST be purchased no later than Tuesday, 16 January 2001 Midnight, Central Time or your reservation will be automatically canceled.
Fares are NOT guaranteed until tickets are purchased.
Flights other than American Airlines/American Eagle are on a request basis only.


Your Itinerary
Flight Departing Arriving Class of Service
City Date & Time City Date & Time
American Airlines 622 DFW 16Jan 11:04am BWI 16Jan 02:46pm Coach
American Airlines 1817 BWI 20Jan 03:31pm DFW 20Jan 06:05pm Coach





...three miles from BRONS, clear for the ILS one five approach...
User currently offlineToxtethogrady From United States of America, joined Dec 2000, 1364 posts, RR: 0
Reply 9, posted (13 years 9 months 3 weeks 1 day 17 hours ago) and read 1554 times:

Anyone remember that famous phone call from almost 20 years ago? Thanks Mr. Crandall for being so brazen.

User currently offlineFlyPNS1 From United States of America, joined Nov 1999, 6646 posts, RR: 24
Reply 10, posted (13 years 9 months 3 weeks 1 day 16 hours ago) and read 1536 times:

You may call it price gouging and indeed you might be right, but these exorbitant prices do have an economic basis. It's all about willingness to pay. Pure and simple, AA charges these prices because there are people out there that are willing to pay them. If these prices were so high that no one would pay them, then AA would be forced to lower their prices. But AA has apparently found people who will pay these high fares and is therefore maximizing its profits. It's pure capitalism at its best or worst, depending upon how you look at it.

User currently offlineSccutler From United States of America, joined Jan 2000, 5557 posts, RR: 28
Reply 11, posted (13 years 9 months 3 weeks 1 day 8 hours ago) and read 1520 times:

...in the North Texas area, AA is protected from meaningful price competition (meaning, for most destinations, competition from Southwest) by legislation, in the form of the Wright Amendment, which precludes price competition on long-haul interstate service.

It is not a case of people being "willing" to pay the fares; AA's domination of the DFW market assures that they have the ability to price flights as noted above, and get away with it. Simply put, N. Texas travelers have no real choice.

It may not be illegal; and the business morality of it is a debate I'll leave to others, but the airline which is (as they used to advertise) "Based here, best here" is using abusive O&D fares in and out of DFW to subsidize lower fares in other markets. You cannot rationally conclude otherwise.



...three miles from BRONS, clear for the ILS one five approach...
User currently offlineGoingboeing From United States of America, joined Dec 1999, 4875 posts, RR: 16
Reply 12, posted (13 years 9 months 3 weeks 1 day 8 hours ago) and read 1510 times:

<< Pure and simple, AA charges these prices because there are people out there that are willing to pay them. >>

Out of DFW to non-WA states, people have no choice. Pay up or don't go.

<< If these prices were so high that no one would pay them, then AA would be forced to lower their prices. >>

Unfortunatly, there are an awful lot of corporations that are based in DFW. If they have business in NYC, they will have to pay the price for their employees to travel.

<< But AA has apparently found people who will pay these high fares and is therefore maximizing its profits. >>

The people they have "found" are the ones who are not willing to drive to AUS to save $1,000.

This is one of the reasons that I don't think AA will maintain a strong presence in STL after the "feel good" news of saving jobs has had a chance to subside. Why funnel money into a hub operation where passengers really DO have a choice, and one where your fares are dramatically lower than they are out of your main hub at DFW?



User currently offlineWpr8e From , joined Dec 1969, posts, RR:
Reply 13, posted (13 years 9 months 3 weeks 1 day 8 hours ago) and read 1501 times:

Sorry guys, but AAR90 and Sccutler are right. It is basic supply and demand and someone out there is willing to pay for it. By the way, it is a bit wrong to say that there is no competion out of DFW. TW, UA, CO, US, and DL also fly out of DFW to NYC. Maybe you have to make a connection, but you pay for the convenience of nonstops. You can also fly Air Tran to ATL and on to LGA or EWR. Again the schedules might not be great but you pay for convenience.

Incidentially, I needed to fly from Houston to DC and saw an interesting fare in the market. BWI is always cheaper since WN flys there, but if I flew WN from HOU to BWI, nonstop, the fare was around $500 bucks the day before departure. CO from IAH to BWI was about $900. However, if I flew on the COexpress plane from HOU to IAH then connected on the same flight to BWI the fare was the same as WN. It's the same city! But CO has systems that automatically match competitive fares in certain O&D markets. WN filed fares out of HOU, so did CO they matched. Incidentially, I flew the IAH BWI direct on CO since the return schedule was not that great. But that was my choice.


User currently offlineAAR90 From United States of America, joined Jan 2000, 3478 posts, RR: 46
Reply 14, posted (13 years 9 months 3 weeks 1 day 8 hours ago) and read 1505 times:

>Spare the marketing cr*p- AA is gouging North Texas pax and has for years.

None of my comments are "marketing cr*p." It is economics 101.

>Their vigorous defense of the the Wright Amendment

The defense of the Wright Amendment was a defense of application of the law equally to all airlines. Right or wrong, AA and the city of Fort Worth lost that arguement in court. Effectively, the law was changed and AA sought to compete in the newly created marketplace.

>and predatory competetive practices are focused solely
>upon keeping prices high,

There are NO restrictions that prohibit ANY airline from entering the DFW marketplace and competing with AA? Matching the price & service of a competitor is NEVER "predatory." If you believe so, then ALL businesses would be guilty of "predatory" activity. Again, economics 101.

>...and they will only offer less-abusive pricing where the absence
>of reasonably-priced competition mandates it.

I think you mean "existence" not "absence." You are correct, AA (all businesses for that matter) charge as much as the market will bear.

>It is not a case of people being "willing" to pay the fares;
>AA's domination of the DFW market assures that they have the
>ability to price flights as noted above, and get away with it.

And what provides AA with its "domination" of the DFW market? Since there are no artificial restrictions to competitors entering the DFW market, AA's "domination" has been determined by the consumers in that market. Recall that DL used to operate their second largest hub operation at DFW and used to have almost 40% of the passenger traffic at DFW. Nothing forced DL to reduce DFW operations except DL's decision to do so on its own.

>Simply put, N. Texas travelers have no real choice.

If more travellers choose a different airline, those airlines would see the increase in traffic and offer more flights. AA would see the shift in passenger preferences and adjust accordingly. Economics 101 and DFW marketplace is one of the few hub airports where government has done little interference and allowed economics to work. Some may not like the winner at DFW. Then again, some don't like the winner at DEN, ATL, MSP, DTW, MIA, IAD, etc., etc., etc.

Of course you could always push for your government to re-regulate the industry again. Fares would be 2-5 times higher (depending upon which economic study one reads) and my pay would probably be twice what it is now.



*NO CARRIER* -- A Naval Aviator's worst nightmare!
User currently offlineGoingboeing From United States of America, joined Dec 1999, 4875 posts, RR: 16
Reply 15, posted (13 years 9 months 3 weeks 1 day 6 hours ago) and read 1495 times:

<< Economics 101 and DFW marketplace is one of the few hub airports where government has done little interference and allowed economics to work. >>

Little interference? How about trying this for a month - kill the Wrong Amendment. Let Southwest start serving DAL-STL, DAL-BNA, DAL-ISP, DAL-BWI. Wonder what AA's fare structure would look like.

In fact, lets use Econ 101 to compare Chigago airfares to Dallas Airfares. Using Travelocity as a source, AA will fly you to STL from ORD tomorrow for $289.50. Southwest will fly you from MDW to STL for $189.50. Now, Chicago's a big town. Is it worth the extra $100 to fly out of Ohare? If so, then THAT's Econ 101 in action.

Now, lets do the same thing from DFW, shall we? Why, goodness gracious - the fare on AA is $1,191.50. I look on Southwest, but low and behold, because Missouri doesn't border Texas, I can't book a flight there on Southwest. Well, I could fly TWA -but their fare is the same $1,191.50. Well, I could fly Continental, but I'd have to change in Houston. That fare is $736. It'd save me little bit. Northwest (hey, it's the same direction) would cost me $1,197. Oh what the heck, let me do the two step it takes to fly SWA. I'll book two trips - DAL-LIT and LIT-STL. Let's see how much it'll cost. $382. Of course, I've gotta dodge the laws to get that fare, but I wonder, if the Wright Amendment weren't in place, how much would the airfare on AA/TWA be then?

I know - there's nothing stopping Southwest from flying out of DFW. In fact, it wouldn't surprise me to see Herb ask for those former TWA gates out there at DFW. Just for a few flights a day to STL, BNA, BWI, ISP, MDW and maybe LAS. It's a big enough airport...west sides not nearly as congested as the east side. Who knows....might just work. But as it stands today, there ARE limitations on traffic into the Dallas area.

AA has let economics dictate that they can charge a $100 "convenience premium" for flying out of O'hare (if you call waiting in line 45+ minutes to take off "convenient"). They can call the shots out of DFW because they have no real low fare competition.


User currently offlineJfidler From United States of America, joined Aug 2000, 368 posts, RR: 0
Reply 16, posted (13 years 9 months 3 weeks 1 day 3 hours ago) and read 1466 times:

Oh goodness, this is totally Econ 101.

Imagine if no passengers wanted to pay that high rate for service. Would the prices go down? Of course.

Charge what the market will bear -- this is nothing new.

I live in DC and there are 3 airports I can fly out of -- BWI, IAD, DCA. Some are more convenient than others, and those that are usually less convenient have lower prices. So as a consumer, I choose whether I want to drive 45 mins to BWI for a lower fare (sometimes I do), or hop on the subway to fly out of DCA.

I think Amtrak should really start doing more marketing -- they can steal away fliers on price alone in some areas, I bet.

Justin


User currently offlineWolfpacker From United States of America, joined Jun 1999, 354 posts, RR: 0
Reply 17, posted (13 years 9 months 3 weeks 1 day 3 hours ago) and read 1453 times:

Lets try another tact.

I start an airline at DFW and have lower fares than AA. AA drops their fares to match mine, great for the consumer. AA should be allowed to drop prices, just like gas stations or grocery stores when new competition moves in.

Who will the consumer fly on? AA or newbie airline? 90% of the time they will choose AA because they are a known entity. Eventually newbie will go out of business because they cannot afford to run an airline with 25% full aircraft.



User currently offlineTheCroupier From , joined Dec 1969, posts, RR:
Reply 18, posted (13 years 9 months 3 weeks 1 day 3 hours ago) and read 1449 times:

Now this is an example of a good topic on this forum with well thought out replies. Lots a good readin.'

I'm certainly looking forward to AA and WN locking horns at Lambert. The consumer should be the winner (for a while at least).





User currently offlineGoingboeing From United States of America, joined Dec 1999, 4875 posts, RR: 16
Reply 19, posted (13 years 9 months 3 weeks 1 day 3 hours ago) and read 1446 times:

Great example wolfpacker, but what if that "newbie" were Southwest? On routes that they both serve, AA has pretty much relegated that service to Eagle? I suppose that's where I say that Econ 101 is NOT alive and well in the DFW market.

Drop the Wrong Amendment and I am sure that AA would lower fares to match Southwest. And I'm equally sure that not everybody would abandon AA to fly Southwest. But...and this is the second part of Econ 101... Southwest would make money at those reduced fares - something the "newbies" have trouble doing for a few years.


User currently offlineLoneStarMike From United States of America, joined Jul 2000, 3857 posts, RR: 34
Reply 20, posted (13 years 9 months 3 weeks 1 day 3 hours ago) and read 1445 times:

Who will the consumer fly on? AA or newbie airline? 90% of the time they will choose AA because they are a known entity.Eventually newbie will go out of business because they cannot afford to run an airline with 25% full aircraft.

And then AA (or any other major) will jack their prices back up to where they were before and once again people will complain about high airfares on the route.

Sigh...it's a vicious cycle, ain't it? You'd think people would learn, but they don't.

LoneStarMike

User currently offlineAAR90 From United States of America, joined Jan 2000, 3478 posts, RR: 46
Reply 21, posted (13 years 9 months 3 weeks 20 hours ago) and read 1407 times:

>Little interference? How about trying this for a month - kill the Wrong Amendment.

Talk to your politicians. Texas politicians created the Wright Amendment, not AA.

>Let Southwest start serving DAL-STL, DAL-BNA, DAL-ISP, DAL-BWI.

There is nothing that prevents WN from flying to those destinations from DFW... just as every other airline must do. If you don't like the fact that WN does not operate in those markets, blame WN for deciding not to operate in those markets. Do not blame AA (or anybody else) for WN's decisions.

>Wonder what AA's fare structure would look like.

Probably a whole lot less. So the real question is why WN has voluntarily decided to not enter those markets.

>Is it worth the extra $100 to fly out of Ohare?
>If so, then THAT's Econ 101 in action.

Apparently so, and yes that is econ 101 in action.

>...but low and behold, because Missouri doesn't border Texas,
>I can't book a flight there on Southwest.

You could IF WN _wanted_ to be in that market... same as any other airline, it must be DFW originating due to Wright Amendment. That is something WN has elected to _not_ do. Your problem is with WN not being in a market you want them to be in.

>But as it stands today, there ARE limitations on traffic into the Dallas area.

The only limitations you mention, you provided the answer to:

>I know - there's nothing stopping Southwest from flying out of DFW.
>In fact, it wouldn't surprise me to see Herb ask for those former TWA
>gates out there at DFW. Just for a few flights a day to STL, BNA, BWI,
>ISP, MDW and maybe LAS. It's a big enough airport...west sides
>not nearly as congested as the east side. Who knows....might just work.

So stop blaming others because WN elects to remain out of DFW marketplace.

Elsewhere someone writes:
>I'm certainly looking forward to AA and WN locking horns at Lambert.
>The consumer should be the winner (for a while at least).

I suspect only for a while since primary AA customers are not primary WN customers. AA & WN operate near simultaneous flights in SNA-SJC and LAX-SJC markets and both fly mostly full aircraft with significant price differences. WN management freely admits its greatest competitor is the automobile.

>Great example wolfpacker, but what if that "newbie" were Southwest?
>On routes that they both serve, AA has pretty much relegated that
>service to Eagle? I suppose that's where I say that Econ 101 is NOT
>alive and well in the DFW market.

In markets where the consumer has decided to not pay the premium fare required for AA service, AA has withdrawn from that market and AMR has replaced it with American Eagle -- its "no frills" service provider. Yes, that is econ 101 at work as well.

>Drop the Wrong Amendment and I am sure that AA would lower
>fares to match Southwest.

Only to a point. OTOH, Crandall said that if the Wright Amendment were repealed, AA would be operating 250-350 flights a day from DAL. IMHO, Carty is currently more competitive in the airline business than Crandall was in his later years, so I suspect that statement holds true today.

>And I'm equally sure that not everybody would abandon AA to fly Southwest.

Probably not since they primarily market their primarily different services primarily to different customers.

>Sigh...it's a vicious cycle, ain't it? You'd think people would learn, but they don't.

It's called a business cycle and it will always be there no matter what the business, no matter who the providers nor who the customers are. U.S. domestic air travel market is one of the least restrictive marketplaces that can be readily observed. No provider of air travel can afford to not publish his offerings (schedule) nor his prices. The consumer has access to near perfect information with which to make decisions. The product (seat for travel) is totally perishable and must be sold or "destroyed" (empty seats can not be filled after departure). It is about as close to a classical economics model (supply & demand) as can be seen anywhere today, yet folks continue to miss the obvious.... supply & demand curves are ever changing... always seeking a balance... never achieving a balance.




*NO CARRIER* -- A Naval Aviator's worst nightmare!
User currently offlineRaddog2 From , joined Dec 1969, posts, RR:
Reply 22, posted (13 years 9 months 3 weeks 19 hours ago) and read 1400 times:

You are right, AAR90, the domestic air travel market is close to a classical model of a competitive market. Unfortunately, it's not -- the key difference being tremendous barriers to entry aggravated by high fixed costs and non-price competition. The problem is that it is very difficult for new entrants to establish themselves in the market. For instance, let's say new entrant NewJet decides to enter the DFW market and compete against AA with cheap fares. Let's say AA matches fares and increases capacity to compete. In a perfectly competitive market, both AA and NewJet would get an equal share of passengers. But because of brand loyalty, FF programs, and other types of non-price competition, AA would get the lion's share of the pax, and NewJet would get none. NewJet is then stuck with high startup and fixed costs that it cannot support because it has no passengers. Result -- NewJet goes out of business. I'm not saying this is right or wrong, legal business practice or predatory behavior, I'm just making the point that the market is not perfectly competitive because new entrants, even if they are more efficient and have lower average costs than their competitors, never last very long.

As a result, the major airlines ARE frequently given what is essentially monopoly power on many routes extending from fortress hubs. You all are right when you say that airlines only charge fares that people are willing to pay. But that can be said for any monopoly. Of course they're going to charge prices that some people will pay, otherwise they have no revenue. But the problem is that the price that produces maximum monopoly profit is not the ideal market price that maximizes benefits for consumers, and society in general. Remember deadweight loss? The only way to remedy this problem is to facilitate entry by new airlines and drive the market toward more competition. But given the way the airline industry is structured, I have no idea how this might be accomplished.


User currently offlineAAR90 From United States of America, joined Jan 2000, 3478 posts, RR: 46
Reply 23, posted (13 years 9 months 3 weeks 17 hours ago) and read 1375 times:

>and other types of non-price competition, AA would get the
>lion's share of the pax, and NewJet would get none.

It sound like a better business decision would be for NewJet to look to other markets where it can better compete prior to attempting to compete where large established and successful carriers operate. The marketplace does not decide who will enter the market, just who will be successful at meeting the demand in that marketplace.

>I'm just making the point that the market is not perfectly competitive
>because new entrants, even if they are more efficient and have lower
>average costs than their competitors, never last very long.

I disagree. Price, cost, efficiency alone do not make up the marketplace. As you correctly point out, many non-price features are also part of the offered product. A prudent business decision would be to not directly compete with a large, successful airline until significant advances are made to address those non-price feature discrepancies. [WN is very good example of this selective non-competition].

>But the problem is that the price that produces maximum monopoly
>profit is not the ideal market price that maximizes benefits for
>consumers, and society in general.

Depends upon what your definition of "maximizes benefits for consumers and society" is. Is this based upon economics? Or sociology? Or something else? And at what level does your definition stop? DFW users only? North Texas economy? Entire U.S. air travel marketplace? etc., etc., etc. Classical economics suggests nobody should "define" anything, but rather allow the dynamics of supply and demand define both the marketplace and the appropriate levels of supply and demand within that marketplace.




*NO CARRIER* -- A Naval Aviator's worst nightmare!
User currently offlineRaddog2 From , joined Dec 1969, posts, RR:
Reply 24, posted (13 years 9 months 3 weeks 17 hours ago) and read 1366 times:

"A prudent business decision would be to not directly compete with a large, successful airline until significant advances are made to address those non-price feature discrepancies."

That is exactly the point. The air travel market has become so dominated by large established carriers that new entrants are relegated to small niche markets. Even if they can operate more efficiently with lower costs than established carriers, it is not a "prudent business decision" to do so, since there is no way they can overcome the substantial non-price factors. This is not a characteristic of a competitive market.

"Depends upon what your definition of "maximizes benefits for consumers and society" is. Is this based upon economics?"

If you'll hearken back to Econ 101, you'll recall that the reasons monopolies are economically undesirable is because they cause "deadweight loss." This is a purely economic concept related to the market in question only (nothing to do with DFW users, north texas economy, etc). We agree that we should allow the dynamics of supply and demand to define the marketplace and the appropriate levels of supply and demand within the marketplace. But what deadweight loss resulting from monopoly pricing means is that the market is no longer operating at the optimum level of supply and demand. By setting the price to generate maximum monopoly profit, the monopolist is essentially artificially restricting supply. What this ultimately means is that the benefit of the monopoly that accrues to the producer is less than the loss of benefits felt by the consumers. There is a net loss of benefit to consumers/producers (aka society) relative to a perfectly competitive market that is operating at the optimum (where the demand curve meets the supply curve). In laymen's terms: pax get screwed more than airlines benefit. Take home message -- economic inefficiency.

Sorry about the economics jargon, (I used to TA an economic policy analysis class in college) but it's hard to draw a supply/demand diagram here. Bottom line is that we both agree that we want supply and demand to do their magic. However, my point is that barriers to entry prevent the market from being competitive, and non-competitive markets don't allow supply and demand to set price and quantity in the marketplace. Therefore, we should try to make the marketplace more competitive, and there are no easy answers.


25 Raddog2 : Actually, I just wanted to add that the previous post dealt only with pure economic theory on why monopolies are bad. It doesn't even begin to address
26 Post contains images AAR90 : >That is exactly the point. The air travel market has become so >dominated by large established carriers that new entrants are >relegated to small nic
27 Sccutler : My final comment on the matter, more to make a point than to convince AAR (your alliegance is clear, and your loyalty laudable, but not entirely witho
28 Goingboeing : > You forgot that when it comes to gouging they are not only "based here" but "best here". I wonder though, if WN were to end it's silence on the WA a
29 Post contains images AAR90 : >but not entirely without a measure of contempt for the >"self-loading cargo" behind the cockpit door). It is not "contempt" but rather an unemotional
30 TheCroupier : http://www.bizjournals.com/dallas/stories/1996/07/29/editorial2.html A quote from the above link...from 1996 (but it still applicable today) The [Wrig
31 Raddog2 : To say that price gouging doesn't happen because people are willing to pay the high prices is illogical. No company, no matter how evil and monopolist
33 Wolfpacker : What would happen if the WA was repealed? WN expands to cities outside the adjoining states and fares drop. AA does what it does in other cities, drop
34 Goingboeing : Nothing else would happen. The thing is, AA would have to match the last minute (read -business) fares to match WN. So in the DFW-STL market, that $1,
35 Bacardi182 : AA once tried to make my dad pay about $1000 for a round trip ticket to msp from dfw (coach). so he flew suncountry and they gave him a row of three s
36 AAR90 : >What else would happen? >Nothing else would happen. The thing is, AA would have to match >the last minute (read -business) fares to match WN. So in t
37 Goingboeing : What have you been smoking AAR90 - DAL doesn't have the capacity to accomodate even 1% of AA flights at DFW, much less 1/3 to 1/2. Yeah, AA would tell
Top Of Page
Forum Index

This topic is archived and can not be replied to any more.

Printer friendly format

Similar topics:More similar topics...
I've Heard Of Birds.. But Rabbits!?! posted Sat Dec 17 2005 08:27:33 by Slashd0t
Origin Accuses Air New Zealand Of Price Gouging posted Fri Jun 16 2006 09:08:13 by NoelG
Air Canada Accused Of Price Gouging... posted Tue Mar 1 2005 19:08:54 by AC7E7
Weird Airplane Contests You've Seen/heard Of. posted Fri Aug 16 2002 06:16:56 by Mirrodie
What's The Strangest Routes You've Ever Heard Of? posted Tue Mar 28 2000 21:38:33 by Boeing 777
Anyone Heard Of The Cosmoplane? posted Wed May 16 2007 02:34:20 by Virgin747LGW
I Flown An Airline That No One Never Heard Of posted Wed Oct 4 2006 02:19:35 by HighFlyer1986
Heard Of More AA Employee Cuts At Ticket Counters posted Sat Jul 29 2006 03:40:17 by ASTROJET707
AA, BA, VS UA Accused Of Price Fixing! posted Tue Jun 27 2006 15:08:15 by NWDC10
Lots Of New Airlines -- But How Long Do They Last? posted Thu Apr 6 2006 05:10:13 by FlightShadow