Supply, Demand, and Pricing

If you are planning a trip somewhere, you could easily drive your car, take the

bus, hop on the train, or take a most...but most people like to fly. Airplanes give us the

ability to travel long distances in only a fraction of the time it would take by any other

form of transportation.

The costs of air travel is ever increasing and decreasing in line with the supply

and demand. Americans love to travel, as is proved by the massive crowds ion the

airports. Airline passengers may eat the same meals and arrive at the same destination,

but they will probably pay a different amount for their domestic flight to the people

sitting in the same cabin.

Air fares are determined by managing the "mix" of tickets - which can vary by the

price and the conditions - a process that creates countless ticketing options on any given

The illustration that accompanied Marshall's origi...

Perfectly inelastic demand

Perfectly elastic demand

flight. I can easily understand how people get confused about it, but on the other hand,

those people are paying the extra price for that flexibility.

Conditions relating to the flexibility of tickets, particularly the ability to change or

cancel them, affects their price. Generally, most airlines try to encourage booking your

ticket early by providing and implementing discount fares with restricted flexibility, with

a mix of higher fares that have more options.

The closer you get to your departure date, airlines tend to alter this "mix" as they

try to 'wring' the most value out of the fixed number of seats leaving the ground.

Understandable. I think we have all experienced and understand that the closer to the

travel date we get, the less discount seats are available. Right?

Qantas (an Australian airline), for example, has four fare "families" and each has

several levels. "Every flight we operate from Melbourne...