Why does the ticket price reduce so much for multi freq routes?

[speedbird]

Everyone seems to accept that if you have more than one flight a day then the ticket price has to come down and you don't make much more money than only making one trip. I understand that with more flights that is more competition which would lower prices but if I am the only operator on that route this means I am competing against myself!!

If the demand is more than the supply of seats then this should effect the ticket price as well. For example I am in a game in 1920 based at ORD the largest aircraft I can buy has 14 seats. There is a demand between ORD and ATL of many thousands so if I offer 14 seats or 28 seats then this shouldn't make any difference to the ticket price. With this demand and supply technically I should be able to charge what I like. If I am the only operator then there is no competition and the second 14 passengers will be willing to pay the same as the first 14. If I had an aircraft of 50 seats making one trip would I have to charge less than a ticket with two aircraft of 14 seats travelling on the route? Surely the price would only come down with supply near the total demand and with more than one operator on the route.

[StephenM]

My view on the situation is that the price elasticity of demand seems to be slightly off, but there's a good bit of work that needs to go into deriving demand calculations that are realistic, and if that is to be done in the near future then expansion of factors influencing it should also be added to support new features.

[speedbird]

I understand the demand might need looking at but why do I need to reduce my ticket prices by almost half if I add an extra frequency to a route to keep 100% load factor but the demand is outstripping the supply. Especially when I am the only operator on the route

[CHR]

I suppose, to go back to your first question, think of it like this.
If you have a 14 seat plane, and you get the price just at 100%, what you are doing is finding the top 14 richest, most desperate people at ATL who absolutely have to get to ORD. They will therefore pay a very high price. If you increase the capacity to 28, you have to find the top 28 people willing to pay a small fortune to go between these cities. However, to get the 100% loadfactor, to get the 28th person  to fly with you, you will have to charge a lot less than to get only 14 people.

You will also notice that, as the price drops, it large increases in the number of seats have smaller impacts on the price (e.g. going from 10 seats to 20 seats might get a drop in fares from $1000 to $700, but going from 170 seats to 180 seats might only drop the price $150 to $140). This is because the majority of people are not willing to pay such high fares (as $1000), so there is a very limited number of customers, and an increase of 10 seats means prices will have to drop considerably to keep up loadfactors. However, a much larger number of people are willing to pay $150 for a seat, so even if you increase the aircraft size 10 seats, a small price drop, with such a large number of potential customers, can fill these seats.

I hope this explains everything.

[YX Ramper]

My marketing class days are too far behind me now to remember clearly, but the pricing model in this system is too generous for the first flight and too stingy for the last. While you could probably come up with a better formula based on population density and competition level, rewarding higher yields to smaller aircraft is also a problem here.

What issues are being seriously looked at now, and what is further down the road? I would like to help in the discussion, but I don't want to waste your forum time on things that can't be worked on.

[yourefired]

The pricing model also doesn't account for price discrimination. The average fare for an airplane is normally NOT at the supply-demand intersection point-because airlines price discriminate the average is somewhere between that equilibrium point and the highest market bearing fare.

[Severnaya]

Additional daily frequencies attract more business travellers (whom are usually on the expensive J and C fares). As they don't want to stay overnight in hotels (if not needed), they're willing to pay higher fares in order to be back the same day. So the 2 frequencies daily instead of one is really not giving the same profit as one flight/day.

For more information read some airline economics books, an easy is this one: Straight and level Airline Economics by Stephen Holloway (http://www.ashgate.com/isbn/9780754672586)

[StephenM]

For more information read some airline economics books, an easy is this one: Straight and level Airline Economics by Stephen Holloway (http://www.ashgate.com/isbn/9780754672586)

coughs


I have a few ideas to research once I finish my degree in May.

[Severnaya]

Haha that's fun! I have the same one with the light blue cover laying on my desk

Btw page 195, point 1, second bullet. "Additional frequencies....(Wells,1999)."