Why Do Fares Vary By Country? (Ask Cranky)

The time has come for another Ask Cranky question. I’ll admit, this one came in a long time ago, but it’s one that I get asked in various forms on a semi-regular basis. So let’s dive right in.

I recently found myself booking some tickets originating in Africa and was surprised how cheap they were. For instance Gaborone-Jo’burg-Dubai-Boston one way for $477; or Gaborone-Nairobi-Mumbai rountrip for $553. What gives, when I can barely go to the Caribbean for that price from Boston and forget London which is still a shorter flight.

Is this just a matter of flights originating in the US costing more because the market will bear it? Or are those cheap flights I saw anomalies and money losing for the airlines? The funny thing is that I have been on board with the argument that ticket prices in the US market are fairly stable over the years and not high. This really puts that into question though!

Sorry if this is a dumb and obvious question.
Sandro

It’s not a dumb question at all. In fact there are a lot of related questions in here, and it’s a pretty complex topic. This is all part of the world of airline pricing. There are really three issues in here worth talking about.

  1. Difference in fares by point of sale – when fares vary depending upon where the ticket is bought (eg the fare from Boston to Gaborone is one price if you buy in the US and another if you buy in Botswana)
  2. Difference in fares by point of origin – when fares vary depending upon where the itinerary starts (eg the fare from Boston to Gaborone is one price and the fare from Gaborone to Boston is another, regardless of where it’s purchased)
  3. Difference in fares on routes of similar distances – when fares don’t match up with distance flown (eg the fare from Boston to Gaborone is the same price as the fare from Boston to Jamaica even though the latter is much shorter)

What Sandro is asking about touches on all of these points in one way or another. But basically, he wants to know why it is that it’s so cheap to buy a ticket from Gaborone to Boston. There are some good answers and some not-so-good ones. Both have an element of truth to them.

Gaborone is tiny, and that means airlines pay very little attention to fares between it and the US. So let’s think about this in bigger terms, let’s substitute Johannesburg. If I look at Boston to Johannesburg on a random day in August, I see Emirates with a one way fare of $813.40. But if I do it the other way, then I see a fare of $488.06.

Both of these fares are pretty cheap, especially for one way travel over such a long distance, but it still says something that it costs 66 percent more to fly from Boston than it does from Jo’burg.

First, it’s important to note that Emirates and the rest of the Middle East carriers are bringing fares down dramatically. This is an extremely low fare, but it’s nothing compared to the roundtrip. If you buy a roundtrip from Jo’burg to Boston, it’s only $832.46. (Roundtrip the other way is still a bargain at over $1,000.) So the sheer low price being offered is a function of Middle East carriers coming in with crazy low fares.

But even with all of these fares being insanely low, there is still that disparity traveling one way vs the other. Why does this happen? The answer the airlines should be giving is that it’s based on supply and demand. For people coming from the US to South Africa in coach, the vast majority are going to be coming for tourism. Sure there’s some business, but it’s primarily about tourism. That’s not a cheap vacation destination, and people who are going down there are very often looking for a once in a lifetime experience. Considering the general wealth in the US, people are willing to pay a fair bit to get to Africa.

The reverse is not true. The middle class in Africa isn’t anywhere near what it is in the US (if it exists at all). South Africa may be best positioned of any country on the continent in that respect, but it’s still a largely poor country with huge income inequality compared to the US. The richest people who can afford to fly often are likely flying in a premium cabin. So if airlines want to fill flights to the US in coach, the fares need to be cheap.

You might wonder why that matters at all. Wouldn’t it make sense to just fly smaller airplanes or cut capacity? Well, not really. Because there is greater demand coming from the US (and Europe) to go down to Africa, there are bound to be empty seats going against the grain. Using an extreme example, there are plenty of people flying from the US to Africa before Christmas. People want to spend their winter breaks on safari. But there is little demand from Americans and Europeans to return before Christmas. There needs to be a balance to fill those seats coming from Africa.

(This, by the way, isn’t limited to Africa. The same phenomenon happens anywhere there’s a demand imbalance, like in Hawai’i over Christmas.)

So fares are lower from Africa to get people flying. If flights are full, then the low fares shouldn’t be selling thanks to revenue management techniques. But having these low fares helps fill seats when the flights aren’t expected to be full.

Now this all sounds great in theory, but the reality isn’t quite as clear. It doesn’t make sense that you do see fares much cheaper going one way vs the other even when flights are full. And you see this same fare difference in premium cabins, when you wouldn’t expect there to be as much benefit from pricing low one way vs the other.

That brings us to the real culprit here… inertia. Chances are that long ago someone set up this as the pricing structure in Africa and nobody has cared enough to try to change it. You have the Middle East carriers keeping fares lower than they otherwise would be. You also have failing airlines propped up by governments (that’s you, South African, but you aren’t alone). With all of these different issues, inertia has a real impact.

In the end, there is no silver bullet to explain exact pricing differences. But since airplanes can’t magically change capacity levels depending upon which way they’re pointing, lower fares are going to be reality in places where demand levels are lower.

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