Richard Green is a professor in the Sol Price School of Public Policy and the Marshall School of Business at the University of Southern California. This blog will feature commentary on the current state of housing, commercial real estate, mortgage finance, and urban development around the world. It may also at times have ruminations about graduate business education.
Wednesday, August 13, 2008
The Mystery of Airlines
Other than Southwest (which hedged its fuel costs), they are all losing money. Yet every flight I take is packed. The obvious solution is for them to raise prices, except that they fear losing market share--in a market that loses money. Perhaps there is some sort of Nash game that explains this behavior...
Flew to Kauai last week from LAX. Plane was packed both ways.
ReplyDeleteHotel and island in general seemed very, very slow and uncrowded for August though. Odd.
Not only packed, but consistently overbooked. I can't remember the last time I was on a flight that was not bribing people to give up their seats. Two flights in the last week (one, Chicago to Norfolk, VA--about 75 seats--we, in fact, got involuntarily bumped; the other from Newark, NJ to Chicago--about 130 seats), both overbooked by at least 6 passengers. Clearly, at least for some flights, it should bepossible to raise ticket prices, especially as the airlines are apparently about to cut the number of flights they are scheduling quite considerably. We shall see, I guess.
ReplyDeleteLetterman is on the case:
ReplyDeleteTop Ten Ways To Tell If Your Airline Is Sticking It To You
http://organizationsandmarkets.com/2008/08/21/top-ten-signs-your-airline-is-cutting-costs/
are solutions to nash games usually equilibrium solutions? it would seem that with bankruptcies and mergers the airline industry is not at equilibrium.
ReplyDeleteto take a very cynical view, the government wouldn't allow all airlines to go out of business - indeed, it was only too happy to give them handouts a few years ago. so perhaps the goal is to grow as big as possible despite the losses, trusting that if you grow big enough you will get bailed out.