It feels like opposite day. For years, people have blamed airlines for jacking up fares in a time of crisis, but now… that may be exactly what people want airlines to do. It is, of course, more complicated than this, but does morality have a place in airline pricing? I should say that I don’t have a definitive answer from a more broad perspective on this, but in this particular instance, it seems obvious how this should work.
In a normal crisis that impacts airline demand — if there is such a thing — you see the same dynamic play over and over again. Think about when a hurricane is coming. People turn to airlines to buy tickets out of harm’s way, and as seats quickly disappear, prices go up. Inevitably, as that happens, headlines appear slamming the airlines for increasing fares. “How could you charge $2,000 for that seat, you cold, heartless bastards!?”
In reality, this isn’t some nefarious airline plot. This is just how airline pricing works on a normal day. As seats fill up, airline systems close off availability of cheaper fares to leave room for those who are willing to pay higher fares. The reason these fares appear during a crisis is for the opposite reason than you think. It’s not that airlines are jacking up fares; they aren’t actually doing anything.
This coronavirus outbreak started off the same way, but airlines responded quickly. People needed to get back home as the illness spread, and travelers panicked. But instead of just letting the pricing mechanisms function as expected, the airlines deftly avoided a PR nightmare by filing new lower, unrestricted fares at a relatively low level to help travelers get home. These fares are actually still in the market today, at least into early May travel for most airlines.
For example, let’s say you were stuck in Europe. A normal one way fare from Frankfurt to Newark on United would cost you $2,206.35 in coach. Today, I can buy that for $464.35. It’s not even a Basic Economy fare. It includes a checked bag.
So the airlines have stuck their fingers into their systems to make sure that there aren’t any bad outcomes for travelers who need to get home. Their PR teams thank them. The problem is, things have now swung the other way where tickets might be too cheap.
Not that most are looking at booking flights for near-term travel, but airlines are trying to tempt you. Fares are stupidly-cheap right now because there is no demand.
How about $44.10 one way from LA to Chicago on Alaska? Or maybe $38.10 from Philly to Fort Lauderdale on American? Or would you consider a $344.55 roundrip from LA to London on United? That last one has a base fare of $1 plus taxes and fees.
That might be worth a second thought for a post-summer trip, but these fares are for travel between now and June. That raises the question… is it moral to put fares this cheap in the market right now?
Most states have “safer at home” orders, or whatever you call them in your neck of the woods. In short, don’t leave your house except for essential trips to the market, doctor, etc. Despite those orders, the idea of finding cheap flights on empty airplanes is going to appeal to some people and might drag them out of their homes. I hope most people would consider that a bad thing if the ultimate goal is to prevent making it easy for the virus to spread, but I’m guessing if I dive deep enough into the blogosphere, I’ll find some idiot joy-riding on these fares.
That means we should want airlines to jack their fares up for once… or not. After all, we do have essential medical workers who need to travel, and the greater good suggests they should get a break. The airline PR folks would certainly agree.
So what’s the right thing to do here? As I said at the beginning, I don’t have an answer more broadly. The good news in this case, however, is that economics agree with “doing the right thing,” so there is a right answer, even though some airlines clearly feel otherwise.
Demand today is likely highly inelastic. The majority of people traveling are doing so, because they need to do it for work or personal reasons. They are putting themselves at risk by doing so, and the fare is likely not the determining factor. Keep fares at normal levels without heavy discounting, and they will buy their tickets. That should be good for airline bottom-lines, and it helps discourage idiots from traveling for fun. That’s good for everyone.
For those who are risking their lives to serve the greater good, like medical workers, then the airlines should be offering discounts or even free travel depending upon the situation. That’s good for the country, and it’s good for the airline’s reputations.
This all sounds too rational, and that’s why I can’t understand why airlines have these dirt-cheap fares in the market today. From an economic and moral standpoint, airlines are making a mistake pricing so low. After scouring a variety of markets, it looks like American is the biggest offender here with a whole slew of cheap fares. Meanwhile, Southwest is at the opposite end with middle-of-the-road pricing that looks like it’s largely distanced-based. Southwest’s is the model I’d follow.
I think the prices are already coming back to more normal levels, because airlines are seeing the stupid low level of pricing is not attracting many additional passengers. Only people that really need to travel are traveling at the moment.
If (and this is a big “if”) an airline could staff the phone lines with enough CSRs to make it easy to get a human on the phone to grant an exception, one would think it would be a great PR move to jack fares back up, then discount them to near-nothing for healthcare workers, people traveling to funerals, etc etc, pretty much any plausible excuse under the sun. It would create massive headaches for operations, customer service, etc etc, but it would be a good PR move, and your prototypical “normal” business travelers (all 2 or 3 of them who are flying at present for non-COVID related business trips, anyway) won’t be bothered to try to get the discounts, as it’s not their money.
Morality walks out the door when cash flow crunches walk in.
Cash is king right now, which is why this type of nonsense is happening.
Airlines don’t operate on a “free market” basis with pricing, so therefore there’s no moral question to ponder other than the consumers own moral hazard of flying when it’s unnecessary to do so.
“ABC Airlines today announces it will begin industry’s first attempt at morality pricing. Initial fares will apply to our celestial service on flight 666 to Hell…, Michigan, that is.”
I think you have a topic for next April 1!
I’ll take an opposite view — the counter is the risk/reward benefit. I am paying airline X a cheaper fee, but I might get a potentially fatal virus. Increased risk, what’s the reward? Why would they charge me MORE when I could end up six feet under? I work for an essential business and we are getting a pay bump to show up to work. So there is premium being paid in the workplace to put yourself at risk. The opposite can be true — if I use your business and there is increased risk, shouldn’t it be less expensive? I don’t know what the right answer is here, but obviously airlines want some form of revenue, but I agree with the central tenant — demand should be inelastic. There should almost be like a mini-travel visa you have to complete: why do you need to get to point X right now?
The moral responsibility and ultimate decision rests with the consumers, not the airlines.
Do you believe the consumer is rational?
PR is more important than revenue right now. The airlines know that pricing fares very high is the right move from a revenue optimization perspective, but they are (rightly) concerned that if they do so, then the DOT will give them less flexibility to cancel flights in the future. If an airlines prices tickets high and fails to sell seats, then the DOT will say “You didn’t even try to sell tickets for that flight – sorry, you definitely still have to run it.” If airlines can demonstrate that there is no demand even at rock-bottom prices, then maybe the DOT will be more flexible about what they can cancel.
I don’t see that the airlines have a moral responsibility to increase fares right now. The problem with rates becoming restrictively expensive during a crisis is that it takes away the ability for a lot of people to evacuate a dangerous situation. With low fares the decision to travel or not is left up to the consumer as it should be.
Also, correct me if I’m wrong – but these fares are in effect for quite a few months from now, and most airlines are offering no change fees. So you could buy a ticket in June or July with an expectation to travel if restrictions are lifted, but change your ticket if the stay at home orders are still in effect.