Is there anyone with a marketing background that can speak to this? Back when airplanes often had a large % of seats empty on flights, I wondered why they (airlines) didn't have walk up sales at the last minute to generate extra revenue. It seemed better than flying with empty seats. I am sure that it has something to do with perceived market value but I am interested more in the actual theory/mathematics behind such decision making.
I did some work with SWA when I was consulting a few years back before Covid for them around elasticity of ticket prices. I’m not an expert (even though they definitely billed me as one
another story for another day) but ultimately for them it was a combination of items:
1) Logistic planning was tough when people buy in mass, same day tickets.
They want to know as soon ahead of time if flights aren’t full enough to justify the size plane they have so they can switch to cheaper smaller planes (protect flight margin overall of the route) versus canceling a flight and rolling people to the next one (depending on frequency and volume of flight routes between the city).
2) Brand Value and general pricing strategy.
This was less important for them as they managed flight margins below the normal margins from “regular lines” (Delta/United/America/etc) with a better flight experience than “Ultra Low Carriers” (Frontier/Spirit/etc) so their floor and ceiling were pretty set. They wanted to maintain price between those groups of carriers so they had a floor and ceiling established by competition.
It follows the same above argument though that it is better for the airlines to reward the behavior of booking far out (then charging cancellation/change fees) than having everyone wait to the last minute and try to snag a cheap flight.
3. Price Anchoring.
Once you pay “$x” for a product/experience paying more feels wrong. People who see their $295 ticket going for $100 same day at the gate get mad.
Even if the $100 just covers cost and is a net loss for the airline the customers that paid more feel robbed. In today’s transparent price market with twitter and travel services like trivago and Priceline it’s just really hard for them to avoid this scenario when they drop the floor of pricing.
