One of the first things frequent fliers learn is that the number of fares paid by each person a plane is nearly equal to the number of passengers.  Airlines aggressively price routes to try to maximize usage of capacity while also maximizing profits.  The end result is that airlines can and do change prices multiple times a day as they jockey themselves amid a sea of competitors to sell what has largely become a commodity, at least in the eyes of leisure travelers.  Simply put, too many people have grown accustomed to searching for flights based on price (because nearly every online search defaults to sorting with the lowest priced flights first) that airlines were unable to differentiate themselves effectively from competitors because when their fares were on screen 2 or 3 of the search they never got booked.

Realizing this (and realizing that not every company can compete solely on cost/price) we’ve seen the “unbundling” of items that used to be included in airfares.  Everything from checked-baggage fees to higher penalties for changing flights (and even carry-on baggage fees at Spirit Airlines) is now seen as a way to charge customers which, in turn, makes it hard for airline passengers to compare two prices because one needs to know all the fees that each airline can assess to make a valid comparison.

The Wall Street Journal today took a look at airline pricing (more from a consumer’s point-of-view than a scientific one as this appeared in the Personal Journal section) and asked some questions about why it is sometimes cheaper to fly overseas than to fly a few hundred miles.  The short answer? Because people are willing to pay more to fly to certain places and/or the competition is not as rigorous on certain (especially international) routes.

The price you pay for a ticket is driven by a number of variables: competition, types of passengers, the route and operating costs. But the biggest factor, by far, is whether discount airlines fly in a market. Low-cost carriers often set the price in markets because competitors feel compelled to match that price or risk losing customers and flying empty seats. And when they aren’t there, big airlines behave radically differently when setting prices.

Over a year ago when Southwest began serving MSP, I offered my own examples coupled with a Marketwatch article of the wide disparity in fares on routes where discount carriers are strong vs. those where they are absent.  The Wall Street Journal piece largely comes to the same conclusion.

And when there’s not low-fare competition, prices soar. The most-expensive average domestic ticket in the first quarter was $786 for round-trip flights between San Francisco and Philadelphia, according to the DOT. That 2,521-mile route is dominated by United and US Airways, who are competitors but also partners in the Star Alliance. Fly to Boston from San Francisco—183 miles farther by air than Philadelphia—and you paid an average $296 less round-trip in the first quarter, according to DOT. The difference: JetBlue Airways has 17% of the San Francisco-Boston market, but none of the San Francisco-Philadelphia market.

As you will discover in this course (and in life) the cost of something often has little to do with the price that is charged.  Does it really cost 100 times more to make a Coach bag that sells for $4,000 as it does to make the one at Target that goes for $40?  Of course not…yet many still fall into this trap with regard to their expectations about prices.

The Middle Seat: You Paid What for That Flight? — It Can Cost More to Fly to Hartford Than Barcelona; How Airlines Determine Ticket Prices. Scott McCartney. Wall Street Journal. (Eastern edition). New York, N.Y.: Aug 26, 2010. pg. D.1