Wednesday, May 03, 2006

How's About This Ticket Pricing Decision?

Anyone who is a regular reader here knows that I continue to shake my head over the lack of fiscal accountability in setting fares, and instead nickeling and diming passengers to death.
Many carriers have added a fuel surcharge fee, supposedly a temporary fee to help offset the high price of oil.  Well excuse me!  But haven't we had high oil prices for awhile now?  (And yes, I realized what was once considered "high" is probably now seen as a bargain.)  Do airline executives really think this is temporary?
Just raise the damn price folks!  Let me know what it's really going to cost right up front.  Don't tease me with those bargain fares, and then jack up the price with add-on fees.
Call me crazy, if you must, but is there anyone who thinks this is a good business decision:
According to Terry Trippler of Cheapseats, it now costs $103,400 to fuel up a Boeing 747-400 for a flight to Asia.  That costs represents an increase in over $48,000 from two years ago.  If you factor that out for a FULL aircraft (408 seats typically, depending on precise configuration), the fuel alone averages out to $253 per person, one-way. 
Then, of course, there are other costs:  labor, gate charges, executive and administrative costs for running the company, and oh yeah, the aircraft costs itself.
Mr. Trlippler had recently paid $227, one-way, not including taxes, for a Northwest flight from Detroit to Tokyo.  Not even enough to pay for the fuel!!!
Is it any wonder Northwewst is in Bankruptcy? 
Is it any wonder why the entire industry is generally in the toilet? 
PUHLEEZE -- when are people going to get realistic about what it costs to fly?
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Melissa Petri said...

"when are people going to get realistic about what it costs to fly?"

I can almost hear the exasperation in your voice :-)

probably, when some airlines stop, as you said, "teasing" people into believing that a flight could be had for less. if there are offers for cheaper flights, people would not stop asking for them. hence, their views of how much a flight should really cost is not realistic.

or is my analogy too simplistic?

Fly Girl said...

Yes, Melissa, that is frustration you read in my words. And yes, the airlines themselves are entirely to blame.

For too many years the industry has rewarded bad behavior, on any number of different fronts.

The public wants low fares, so the airlines give them out -- regardless of the high price it exacts in other ways. And what's sad is that many times we don't realize that we pay for this in other ways: bankruptcies cost ALL of us, the pension board debacle, reduced emplyment, etc. It's one big circle, and you get bet the executives at the top of the food chain aren't the ones picking up the tab for these poor business decisions.

Until the industry changes, and starts charging what it costs to stay in business, this madness will continue.

Anonymous said...

Mr. Trippler has since updated his analysis to admit that he had a division error. He really paid $277 each way - giving NWA at least some margin instead of a complete loss based upon fuel alone.

Gary said...

There are two basic reasons that fuel charges make sense for airlines (and no, I don't like them either).

First, price increases don't get passed along to corporate customers with fixed-price contracts while surcharges do.

Second, fuel charges are also a subtle way to signal price increases in a way that makes it easier to collude with other airlines. At the same time, the fuel cost narrative makes price increases easier for customers to swallow. I wrote up a long discussion of this on my own blog a couple years ago.


Fly Girl said...

Anonymous: Thanks for that update, as I had missed it. So, IF the plane was full they would cover the cost of fuel. Now, we're just not sure about all the rest of the costs.

Gary: Very good point about the add on costs being able to be passed along to contract tickets. I'm never sure just exactly how many of these are out there for passengers. Silly me -- I always tend to focus on that damn collusion in ticket pricing thing!

Joe said...

I think that what Mr Trippler is forgetting is that planes also carry cargo, which pays for a percentage of the fuel costs as well. I'd bet that a 747 with 450 or so passengers could fly on a lot less fuel than the same plane filled with passengers and cargo. Less weight, less fuel, no?

So in a sense, the cargo, to a point, subsidizes our ticket prices.

Fly Girl said...

Joe: You are absolutely right that cargo is a part of the income point of view. As is mail. And of course, carrying all that non-human stuff has ground costs as well as fuel costs as well.

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