|Quoting faro (Thread starter):|
Do LCC's sometimes price their tickets so low that they don't cover their direct operating costs? Assuming 100% load factor, are ticket prices sometimes so low that they don't cover the aggregate of things like:
Yes and no.
Yes, in that what you see for a flight, is the last fare.
No, in that what matters is the TOTAL REVENUE for a flight.
LCCs usually start off selling dirt cheap very early on for a flight at a certain date. As time nears the actual flight, the price goes up.
The early bird tickets are put into a yield management model, which adjusts the anticipated time yield demand curve. If the early bird gets "more popular than anticipated", then expect the later tickets to go on to the higher price buckets faster... the progress along the yield curve is also monitored, ie. constant refinements.
And then the fare itself is just one component of what the customer pays out in the end. Some LCCs even put in anticipated sales on board into the anticipated total revenue model.
For yield management, the idea for the variable pricing is that you fill all but the last seat (theoretically, the last seat would sell at an infinite price)... because seats on a given flight is inventory, and that inventory vaporizes into thin air once the door is closed.