Art Carden  

How Economics Helps Us Understand: Airline Practices

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The world is a pretty complex and mesmerizing place, and people (and firms) do a lot of things that are, at first glance, hard to understand.

Consider airlines. I've heard on numerous occasions complaints about how major carriers board their planes inefficiently: by using alternative loading and unloading schemes, they can turn flights around more quickly and earn more money by operating more flights.

And to be sure, turnaround time is important. However, it isn't everything. In the last few years, airlines have aggressively unbundled a lot of what they offer. On many carriers, you have to pay to check bags unless you have elite status or a special credit card. Flyers with elite status get preferred boarding and seating. There are a lot of ways in which flying as an elite differs from flying as a non-elite traveler.

This, I think, explains a lot of the differences. Business travelers and frequent flyers pay the bills, and competition for their loyalty is pretty fierce. I didn't realize just how great elite status was until I achieved it. I get to breeze through check-in (and security at some airports), I have virtually guaranteed overhead space that comes with priority boarding, and I can get some work done between when I board and when the door closes. These added layers of convenience make it a lot easier to pick my preferred airline, even if I have to pay a few dollars out-of-pocket on a trip for which I'm being reimbursed.

I haven't studied airlines in detail, but my impression is that the major carriers are serving a different market than the discounters.* Hence, we see these fairly substantial differences. Am I right, or am I missing something?

*-When we moved back to Birmingham, I was excited to be back in a Southwest Airlines-served city. Delta and others usually offer more convenient schedules and are extremely competitive on price. I recall reading in the SWA magazine when I was in grad school that they see themselves as substitutes for driving.

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CATEGORIES: Microeconomics

COMMENTS (5 to date)
Steve Sailer writes:

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nl7 writes:

Just looking at the machine, you'd think that planes would have multiple doors and gates, since that's the choke point that really slows people down. But even excluding the costs of re-tooling, re-designing and building new planes with 2 or more entrances (some distance from each other), you still have a lot of costs from that.

A second gateway at the airport blocks another plane from using that space. You have to staff the second entrance/exit at least at one end. Service crews have to go through all the steps to connect and disconnect that second entrance, increasing labor requirements. You probably have increased maintenance and inspection requirements around the doors, increasing those costs. And of course, you can't have seats right in front of the extra entrances, so you drop the seating capacity.

So while I'm waiting for the kid five rows up to hurry up so his frazzled parents can get moving - and I'm wishing that there were a second exit so that row 39 doesn't have to wait on rows 1-38 - it doesn't make a lot of cost sense. The waiting on and off is a relatively small portion of most flights.

That's why most planes have one entrance/exit and one jetway, except for some of the larger ones like A380s. It's more time efficient to have more ways on and off (even city buses usually have two doors) but it's usually not cost efficient at the current value passengers place on their time. It makes more sense to let time-sensitive customers pay extra to get on early and subsidize the rest - even if the overall time to load is no different or perhaps slightly longer.

Daublin writes:

When you mention an improved loading sequence, I presume you are talking about how business class people board first?

The same situation comes up with amusement park fast-passes. People who pay much more for their tickets get to have a much shorter line.

In both cases, another way to look at it is that if *everyone* paid the high-price cost, then everyone could have short lines. They'd have to build more planes and more amusement parks to make it work. Doing so would be expensive, and gives you an idea of why these tickets are so expensive.

Worth noting is that it's an example of price discrimination, Arnold Kling's favorite economic phenomenon.

india white writes:

I prefer to maximize my time off the plane. Last on, first off. I find "doing work" impossible in a sardine can with wings, or a bus or a car for that matter.

Free lounge use, sleeping carrels, cheap booze, quick reschedules for the inevitable delay or missed connection... now that's good living.

Taking 38 rows worth of elbows, knees, and carryons from the hoi polloi, gack, that's awful.

A.W. Carus writes:

Look at Preston McAfee's work on airline pricing; that is the most mysterious aspect of their behavior, and if you understand that, I'd bet that a lot of the rest falls into place. It doesn't appear anyone has got much beyond McAfee (who doesn't claim to have solved the mysteries).

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