Here’s something that I find to be pretty interesting…

There’s no “right” way to price flights right now

With demand for air travel in the US having decreased by over 95%, there’s no right way for airlines to go about pricing flights. Revenue management used to be an art form, while right now it’s, well… not.

There are several approaches airlines could take towards pricing flights right now, including a couple of extremes:

  • They could offer incredibly cheap fares even below their marginal costs, like American’s $16 Miami to Los Angeles fares; at the same time, airlines shouldn’t be trying to stimulate demand right now, as people should be home, and what’s the point of selling a flight below the marginal cost?
  • They could offer incredibly high fares given how much capacity has decreased; at the same time, the optics of this would be terrible, given that it’s largely essential workers flying, and that airlines have just received a government bailout

In reality I’m seeing most flights in the US right now priced somewhere between the above two extremes, though for the most part I see fares that are lower than they used to be. Given how little demand there is, I guess that’s about as good of an approach to take as any?

American 737

Looking at comparative airline pricing

A big shoutout to reader Ethan for this. He sent me an email with the idea for the post, and even with the below screenshots. From my perspective it doesn’t get much better than that. 😉

Ethan decided to do a quick informal study comparing fares on American and Delta during the COVID-19 crisis. He did this by:

  • Comparing nonstop flying pricing between American and Delta hubs (where neither airline has an advantage)
  • Looking at roundtrip flights on a particular date in a few weeks

On the surface looking at fares over one date isn’t going to give you a full sense of a carrier’s pricing strategy, though in this case perhaps it does somewhat, given how low demand is.

I do think this actually gives us a pretty good sense of the pandemic pricing strategies of these two airlines, especially given the consistent theme.

How does pricing between American and Delta compare for six different city pairs?

Between Atlanta and Charlotte:

  • American has fares starting at $94 roundtrip
  • Delta has fares starting at $242 roundtrip

Between Atlanta and Miami:

  • American has fares starting at $93 roundtrip
  • Delta has fares starting at $247 roundtrip

Between Detroit and Charlotte:

  • American has fares starting at $96 roundtrip
  • Delta has fares starting at $207 roundtrip

Between Detroit and Philadelphia:

  • American has fares starting at $93 roundtrip
  • Delta has fares starting at $201 roundtrip

Between Atlanta and Chicago:

  • American has fares starting at $197 roundtrip
  • Delta has fares starting at $297 roundtrip

Between Atlanta and Dallas:

  • American has fares starting at $100 roundtrip
  • Delta has fares starting at $137 roundtrip

Obviously these are some specific examples, but it reinforces what I’ve seen in general when pricing flights — American is pricing significantly lower than Delta across the board right now.

What should we conclude based on this?

As I said above, I don’t think there’s a right way to go about pricing right now, though I think we can kind of get a sense of the strategies of these two airlines:

  • Delta is largely trying to maintain regular pricing (at least as much as possible), recognizing that they shouldn’t be trying to generate demand, and hoping that people will choose Delta because they know they’re a quality airline
  • In the case of American, I’m not exactly sure what their strategy is; I’m not sure if they’re actually trying to create demand with Spirit Airlines-esque pricing, if this is a “thank you” to taxpayers and/or essential workers, or what

Delta 737

Bottom line

Airline pricing throughout this pandemic has been puzzling, to say the least. We’ve seen airlines sell tickets at below marginal costs, and I’m not sure if that’s intended to stimulate demand (which seems irresponsible short term), or if it’s more of a “we’re bleeding money anyway, so we might as well give away tickets” approach.

Have you noticed any interesting trends when it comes to airline pricing right now? How do you think airlines should go about pricing in the current situation?

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