Misunderstanding the Market


I've poked fun at Ms. Daswani before, but she's come up with another zinger in the Unlinkable SCMP.

Model for transport

Well-managed discount airlines are making profits in spite of high oil prices and selling air tickets so cheaply that it puts our public transport to shame. They do not have any "roadshow" infotainment income, yet they are able to charge less than public transport, calculated on a pro-rata basis. Sometimes the ferry ride to Macau is more expensive than the plane ticket. The airlines' fare structure is a good basis to force cuts in public transport fares.


The ludicruously low fares some airline operaters claim to charge are called "Loss Leaders". i.e., the first ten people to book get a loss-making fare, while the rest get a sliding scale of profitable fares. In. Ms Daswani's case, there's a few seats less than $170 (the cost of the ferry), while most of the rest of the seats are more expensive. The airline will make most profit on a route by charging exorbitant fees to business class users. i.e. Cathay Pacific's business class costs three times as much as economy class.

How does this translate to domestic public transport fares? It doesn't. There's no booking of seats or preferential treatment for early customers. Everyone who wants to use the service pays the same fare (unless they're an OAP or a child, of course). There is no scope for differential charges, or charging business users more than others, so the airline pricing model has no connection to public transport fares.

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This page contains a single entry by dave published on November 17, 2005 6:21 AM.

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