To maximize profit, airlines want to charge higher prices to consumers who are willing to pay more (inelastic demand) and lower prices to those who won’t buy unless the price is low (elastic demand). In essence, this comes down to charging business travelers more and leisure travelers less. In our textbook, Tyler and I discuss some of the classic methods of distinguishing these two types of consumers. Business travelers, for example, are more likely to want to travel at the last-minute so airlines give discounts to those who book several weeks in advance. Business travelers are also less likely to want to stay over a Saturday so a Friday to Sunday flight is cheaper than a Monday to Wednesday flight. In our next edition, we will have to include a brilliant new method pioneered by GetGoing.com. Here from the NYTimes is how it works:
Instead of bidding, you choose two places you would like to visit (say, Miami and Los Angeles), select your travel dates and flights, then enter your credit card details. GetGoing randomly chooses one of the two trips and books your ticket, which you can’t change or cancel.
… GetGoing promises savings of up to 40 percent off published airfares, but the coin flip reassures the airlines that they are giving these discounts to leisure travelers, not business travelers who would pay a higher price because they have to fly.
Hat tip: William Gadea.