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Please read the news following the link:
- Please read the news following the link: http://www.wsj.com/articles/airline-fare-riddle-one-route-two-prices-1420676518. The article has also been posted with this problem set. Please use supply-demand analysis to explain the phenomena that the air fares could be different for the same route with different directions. You might want to discuss the reasons behind the high demand for a selected originating market, price elasticity of demand might also help in explaining the high price of a specific direction. Further online search and study about differential airline pricing for the same route is encouraged.
Airline Fare Riddle: One Route, Two Prices - WSJ Page 1 of 4 This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit
http://www.wsj.com/articles/airline-fare-riddle-one-route-two-prices-1420676518 THE MIDDLE SEAT Airline Fare Riddle: One Route, Two
It?s the Same Round-Trip, but the Fare Depends on Which Direction
By SCOTT MCCARTNEY
Jan. 7, 2015 7:21 p.m. ET There seems no end to ways airfares can confound and frustrate travelers.
Airlines charge different prices for the same trip depending on which direction
passengers are flying. For example, the average price paid for tickets on Los AngelesHonolulu round-trips was $614 if the trip originated in Los Angeles, 7.5% more
expensive than the $571 average-ticket price if you started in Honolulu. That is among
the findings of a study conducted for The Wall Street Journal by Airlines Reporting
Corp., which processes tickets for online and traditional travel agencies.
International flights had the biggest directional price differences. Between New York and
London, travelers paid $2,507 on average if they started in New York and $1,672 if they
began the trip departing from London, an $835, or 50%, boost. Between New York and
Tel Aviv, people leaving from the U.S. paid $354, or 28%, more on average than people in
Israel?$1,618 if the round-trip began from New York?s Kennedy Airport versus $1,264 if
the trip started at Tel Aviv.
In theory, just as many passengers are traveling back and forth between any pair of cities.
Travelers who head to Hawaii from Los Angeles are also competing for seats on return
flights home from Honolulu. And there isn?t any cost difference to the airlines for the
round-trip no matter which direction is flown first. http://www.wsj.com/articles/airline-fare-riddle-one-route-two-prices-1420676518 9/17/2015 Airline Fare Riddle: One Route, Two Prices - WSJ Page 2 of 4 ?I think the U.S.
consumer is being
gouged by the airlines,
but it?s the nature of
commerce,? said Guy
Millo, chief executive
officer of Da?at
which organizes group
tours in Israel and has
offices there and in the
U.S. ?There?s no way a
28% price difference
between New York and
Tel Aviv can be
attributed to fewer
travelers on a round-trip
route. Travelers go both
ways.? Mr. Millo, who travels regularly between the U.S. and Israel, has personally taken
advantage of the pricing difference. Six years ago he used frequent-flier miles to go one
way to Israel. Now all his round-trips back and forth are ticketed with departures from
Tel Aviv rather than New York. The scheduling gets complicated, but the savings is
significant. In November, he flew on a $3,200 round-trip Delta Air Lines business-class
ticket, but the same flights would have been at least $5,500 if he had started in New
American Airlines, Delta
and United Airlines all
differences result from
simple supply-anddemand pricing. If there
are more people in New
York going to London
than the other way, airlines can fill seats at higher prices with New York passengers.
?It comes down to demand in each originating market,? said a spokesman for American. http://www.wsj.com/articles/airline-fare-riddle-one-route-two-prices-1420676518 9/17/2015 Airline Fare Riddle: One Route, Two Prices - WSJ Page 3 of 4 Some cities have more buyers of last-minute tickets at higher prices, which drives up the
average for tickets sold in one direction over another, a Delta spokesman said. New
Yorkers may tend to book closer to departure than Londoners, for example, and end up
paying more. ?We look at all of our pricing very, very closely and if there?s enough
demand to maintain that price,? the spokesman said.
A United spokesman said holiday travel periods drive demand directionally, pushing
fares higher. ?There may be fewer deeply discounted seats available on preholiday
Hawaii-bound flights because of the increased demand by mainland travelers,? he said.
Supply and demand drives almost all airfare peculiarities, said Scott Nason, a former
airline-pricing executive who now consults with companies on revenue management.
That is why short trips can be more expensive than long trips, and today?s cheaper fuel
costs don?t necessarily translate into lower ticket prices. Since airline pricing was
deregulated in 1979, carriers haven?t priced tickets according to their costs, unlike
grocery stores and gas stations. They try to get the most revenue out of each flight based
on what people are willing to pay, Mr. Nason said.
For the fare analysis, Airlines Reporting Corp., or ARC, studied average pricing based on
direction of travel on more than 6.8 million tickets sold for the U.S. domestic and
international markets between Jan. 1, 2013 and July 31, 2014. The study included the 10
most popular routes for domestic travel and 10 for international flights into and out of
the U.S. ARC used data from its global-ticketing database, which includes both U.S. and
foreign travel agencies but not data for ticket sales on airlines? own websites.
On the top 10 domestic markets, the average price variation by direction was just $18, or
3.5% of the ticket price. Atlanta-New York was typical, with average prices from New
York La Guardia Airport at $474 and average prices originating in Atlanta at $456.
Between New York and Los Angeles, average prices varied by just 2%.
?The U.S. market appears to be a lot more homogeneous than we thought,? said Chuck
Thackston, ARC?s managing director of enterprise information management.
The biggest domestic differences were found in leisure markets such as Honolulu, Las
Vegas and Orlando, Fla. Demand comes heavily from one end of the trip over the other,
and travelers often pay higher fares for peak-time flights.
Travelers pay a premium for flights to leisure destinations on Friday evenings, for
example, and returning home on Sunday nights. Flights in the other direction at peak
vacation times may be less-heavily booked, so people who live in leisure destinations can
take advantage of cheap prices while people going in the other direction are paying high
prices, Mr. Nason said. http://www.wsj.com/articles/airline-fare-riddle-one-route-two-prices-1420676518 9/17/2015 Airline Fare Riddle: One Route, Two Prices - WSJ Page 4 of 4 ARC found larger pricing differences on the top 10 international routes involving the U.S.
Seven of the 10 busiest international markets were more expensive traveling from the
U.S., while the others were more expensive for flights originating abroad.
Airlines say their prices vary between countries, which is why airline websites often ask
travelers to identify their country when they first begin shopping for fares. A weak
economy in a particular country might prompt airlines to offer lower prices to stimulate
travel from that location, while not offering those prices on the same route in the
opposite direction, Mr. Nason said. Currency fluctuations can also impact pricing?a
strong dollar can make U.S. airline tickets more expensive overseas when sold in local
currencies, unless airlines lower prices to keep up sales.
American?s nonstop flights between Dallas-Fort Worth and Madrid were priced Tuesday
at $1,256 round-trip for late January when originating in Texas, for example, but only
$684 round-trip for flights starting in Spain on the same dates.
American said the low price offered for trips starting in Madrid are the result of a fare
sale that is only available from European points of origin.
In Israel, Mr. Millo says travelers headed for New York are willing to make a stop in
Europe to get lower fares. U.S. travelers prefer the convenience and perceived safety
advantages of nonstop, direct flights, he said. That forces airlines to offer lower prices in
Israel to better compete against European airlines on the New York-Tel Aviv route.
Write to Scott McCartney at [email protected] Copyright 2014 Dow Jones & Company, Inc. All Rights Reserved
This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For
non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com. http://www.wsj.com/articles/airline-fare-riddle-one-route-two-prices-1420676518 9/17/2015
This question was answered on: Feb 21, 2020
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