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.
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.
- 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)
- 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)
- 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.
The disparity also has to do with currency conversion since airlines can’t raise fares too fast in say South Africa rand terms if the currency falls significantly against the US dollar or they will kill demand from one side of the route. But over time an airline like South African Airways may offer fewer low bucket fares in rand if it declines and more in US dollars since the US dollar fares become more valuable in its accounts.
If costs vary by point of sale, then why doesn’t some travel agent set up shop (or send an associate) to a low cost country?
AW – Well they can and some do. But it’s not easy to just open a new business in a country far away. I’m not sure there are enough point-of-sale differences anymore to make it worthwhile, but I haven’t looked in quite some time. Some agencies that have clout can also get the airlines to offer point of sale fares from one country in another. (I’ve seen it with one airline, at least.)
Very good point, It’s not like an airline can run a 777 to JNB and magically turn it into a 767 on the return flight.
This boys and girls is why WN has done so remarkably well with a domestic only network. Going international adds a whole slew of dynamics.
This is also why the near future is going to be a struggle and very interesting for WN. They’ve tapped out the domestic market (that is unless they want to add a smaller plane.) so they are growing internationally.
A/Nick – So far, almost every international destination Southwest has started is almost entirely for US point of sale. There just aren’t a lot of people living in Punta Cana, for example, who want to come to the US. It’ll get a lot harder when they get beyond that type of destination into one that requires foreign points of sale to succeed.
I get why fares vary by origin (although I’d add that the disparity on some routes such as Australia-EU/US and vv. is more about gouging passengers), but I don’t get why they differ by point of sale.
Arcanum – It’s again about ability and willingness to pay. Though I do think that in the age of the internet, the importance of point of sale will continue to be reduced.
Cranky, on the point of currency….have you ever seen where it is advantageous to purchase airfare online in the local currency instead of US Dollars?
I see this all the time in Colombia. If you check Avianca’s Colombian website vs Avianca’s US website, most of the time the prices in pesos are half of the USD prices. And yes, you can pay those colombian pesos fares with your USD credit card. So it’s always useful to check the local currency fares and compare.
Chicago Chris – I assume you mean if they offer you the choice of using your own currency or the native currency? If you have a foreign transaction fee on your credit card, then it’s probably worth doing it in your own currency. But if not, it’s almost always better to pay in the native currency and let your card do the transaction fee. At least that’s my experience.
I am agree with Odraude there is lot difference between local currency and USD prices.Suppose you are in India and book your flight with Indian Rupee instead of USD , you will that you have saved a good amount in comparison to USD. So you should always compare local currency and USD fare.
This directional difference is even more noticeable in Eastern EuropeUS route
For example Moscow>NYC>Moscow (non-stop) is $530 Apr 24-Apr 30
The same carrier (Aeroflot) on the same dates for NYC>Moscow>NYC charges $850
Kiev-NYC rt (multiple carriers) starts from $590
NYC-Kiev rt (same carriers, same dates) start from $990
And this is not a fluke, it has been like this for a while
So how does one take advantage of the lower prices at these origins with more advantageous prices? For example, on a return fare from NYC to Bogota, if the prices are dramatically cheaper when purchased in the Columbia, what’s to stop me from buying the ticket online or from an agent in Columbia?
JoeChin99 – If the point of sale price in Colombia is much cheaper than the point of sale price in US for the exact same itinerary, then you can buy it in Colombia if you have someone to buy through. Just keep in mind there can always been different rules/laws when purchasing in a different country.
This works extremely well with Norwegian. Given the strength of the US dollar, booking your ticket on Norwegian (on the Norwegian version of the site) will actually save you a few hundred dollars off an already inexpensive far.
I remember when I was flying to Australia from US via Japan, the Jetstar (discount Aussie jet)’s website will show prices from Cairns to Tokyo in AUD, but does NOT show me Tokyo-Cairns leg in AUD, instead, it was in JPY. When I converted both to USD, paying in AUD saved me much more, so I had to have my sister who is there to buy Tokyo-Cairns portion for me. And even you thought you went to their domestic site, it detected my IP address and knew I’m in US.
This is exactly right. Anyone who’s ever worked in the travel business will tell you “the point of origin determines the fare”. This is always the case. The taxes are levied at the point of origin. The fees are levied at the point of origin with few exceptions. A foreign issued ticket to the US will always include that wonderful, post 9/11 security fee.