With all else being roughly equal: direct flight, similar distance, same airline.
Yeah the supply is greater at major airports (in the form of more gates), but so is the demand. I’m struggling to see why that doesn’t balance out.
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Just because supply and demand balance out doesn’t mean that something has to be cheap. A low demand and a low supply mean that you’re dealing with a niche market in which (1) there isn’t much competition to drive prices down and (2) you don’t benefit from economies of scale (as much).
If there’s only one airline serving a particular route (say, Brussels to Madeira), then that airline can charge higher prices as they know their customers have no other options, or at least the alternatives are much less convenient (e.g. flying with a stopover, taking a boat, or not traveling at all).
If you’re an airline serving a low-demand route, then you likely have to fly smaller planes on that route, as flying a mostly empty big plane would be wasting fuel. A smaller plane uses less fuel overall, but more fuel per passenger, which raises the ticket price. Also, to maximize their profit airlines want to have as many of their planes in the air at the same time as possible, since an aircraft only costs money when it is sitting idle. This is easy to do if you’re flying between big hubs that lots of people want to travel to. But if you’re serving to a small airport, you can probably only do so occasionally – say once a week – while still getting enough passengers. And you may only be able to fly the same route back and forth to this airport, rather than stringing lots of different journeys together (e.g. instead of going Berlin – Madrid – Rome – Frankfurt – London – Paris – Copenhagen – Berlin, you have to go Brussels – Madeira – Brussels). This makes it harder to draw up an efficient schedule for your planes as it gives you very little flexibility. So your planes will spend more time sitting on the tarmac or in a hangar, (which costs the airline money to park them there, and that additional cost has to be charged to the airline’s customers as well.
Just because supply and demand balance out doesn’t mean that something has to be cheap. A low demand and a low supply mean that you’re dealing with a niche market in which (1) there isn’t much competition to drive prices down and (2) you don’t benefit from economies of scale (as much).
If there’s only one airline serving a particular route (say, Brussels to Madeira), then that airline can charge higher prices as they know their customers have no other options, or at least the alternatives are much less convenient (e.g. flying with a stopover, taking a boat, or not traveling at all).
If you’re an airline serving a low-demand route, then you likely have to fly smaller planes on that route, as flying a mostly empty big plane would be wasting fuel. A smaller plane uses less fuel overall, but more fuel per passenger, which raises the ticket price. Also, to maximize their profit airlines want to have as many of their planes in the air at the same time as possible, since an aircraft only costs money when it is sitting idle. This is easy to do if you’re flying between big hubs that lots of people want to travel to. But if you’re serving to a small airport, you can probably only do so occasionally – say once a week – while still getting enough passengers. And you may only be able to fly the same route back and forth to this airport, rather than stringing lots of different journeys together (e.g. instead of going Berlin – Madrid – Rome – Frankfurt – London – Paris – Copenhagen – Berlin, you have to go Brussels – Madeira – Brussels). This makes it harder to draw up an efficient schedule for your planes as it gives you very little flexibility. So your planes will spend more time sitting on the tarmac or in a hangar, (which costs the airline money to park them there, and that additional cost has to be charged to the airline’s customers as well.
I like how you’re thinking: in terms of supply and demand, shifts in the system, and how it would affect cost. However, you shouldn’t think of a singular supply/demand graph receiving inputs from both airports, which would set the overall price of a ticket. There will just be two graphs where supply and demand intersect at the price/quantity, which will fluctuate uniquely for each airport.
You are correct; in a scenario where the ONLY discriminatory factor is size/volume of business and either airport introduces a price change, that will theoretically drive consumers to the other airport, assuming they have the productive capacity to hold it.
However, this is where it’s important to remember that almost all of economics theory is formulated under some set of assumptions, simply because creating a comprehensive model of every single variable is impractical and some are intangible by nature. So even though we can’t model every single variable into our supply/demand graph, we can discuss ones that would potentially have the largest impact:
– Economies of scale. The larger airport operates much closer to its peak productive capacity, which itself is already higher than the smaller airport’s. Making more money, while *proportionally* having to invest much less of it back into staff, infrastructure, maintenance, etc, leads to lower prices.
– Amenities. Because of the higher volume of foot traffic, the larger airport has the ability (and space) to attract businesses like restaurants, car rental companies, and vendors. All of these businesses pay to rent space in the airport, further contributing to the ability to lower costs.
– Competition. As others have stated, a lack of competition is bad for the consumer’s wallet. Two gas stations on the same corner will have more incentive to charge a fair price if their customers can simply go across the street to their competitor (the reasoning why they’re always next to each other is a separate economic phenomena).
– Reliability. Or the ability to plan for contingencies. For example, a small airport with one runway won’t have many options if a snow storm hits and it needs to be salted and plowed. The larger airport might have the capacity to re-route flights to a less affected area of the airport to avoid delays and negative consumer experiences.
– Consumer bias (at least in the US). Especially after the 9/11 attacks, the public has become increasingly skeptical of airports with smaller/less technologically advanced screening systems (even though most of it has been proven to be “security theater” anyways).
– Smaller airports often have shorter runways, which require more experienced pilots to execute landings. While not directly price-related, it affects an airline’s willingness to conduct business with an airport.
I’m sure there are many more that I’m failing to think of, but you get the gist. The bigger airport can retain its revenue much more efficiently while also delivering a higher quality consumer experience.
I like how you’re thinking: in terms of supply and demand, shifts in the system, and how it would affect cost. However, you shouldn’t think of a singular supply/demand graph receiving inputs from both airports, which would set the overall price of a ticket. There will just be two graphs where supply and demand intersect at the price/quantity, which will fluctuate uniquely for each airport.
You are correct; in a scenario where the ONLY discriminatory factor is size/volume of business and either airport introduces a price change, that will theoretically drive consumers to the other airport, assuming they have the productive capacity to hold it.
However, this is where it’s important to remember that almost all of economics theory is formulated under some set of assumptions, simply because creating a comprehensive model of every single variable is impractical and some are intangible by nature. So even though we can’t model every single variable into our supply/demand graph, we can discuss ones that would potentially have the largest impact:
– Economies of scale. The larger airport operates much closer to its peak productive capacity, which itself is already higher than the smaller airport’s. Making more money, while *proportionally* having to invest much less of it back into staff, infrastructure, maintenance, etc, leads to lower prices.
– Amenities. Because of the higher volume of foot traffic, the larger airport has the ability (and space) to attract businesses like restaurants, car rental companies, and vendors. All of these businesses pay to rent space in the airport, further contributing to the ability to lower costs.
– Competition. As others have stated, a lack of competition is bad for the consumer’s wallet. Two gas stations on the same corner will have more incentive to charge a fair price if their customers can simply go across the street to their competitor (the reasoning why they’re always next to each other is a separate economic phenomena).
– Reliability. Or the ability to plan for contingencies. For example, a small airport with one runway won’t have many options if a snow storm hits and it needs to be salted and plowed. The larger airport might have the capacity to re-route flights to a less affected area of the airport to avoid delays and negative consumer experiences.
– Consumer bias (at least in the US). Especially after the 9/11 attacks, the public has become increasingly skeptical of airports with smaller/less technologically advanced screening systems (even though most of it has been proven to be “security theater” anyways).
– Smaller airports often have shorter runways, which require more experienced pilots to execute landings. While not directly price-related, it affects an airline’s willingness to conduct business with an airport.
I’m sure there are many more that I’m failing to think of, but you get the gist. The bigger airport can retain its revenue much more efficiently while also delivering a higher quality consumer experience.
I like how you’re thinking: in terms of supply and demand, shifts in the system, and how it would affect cost. However, you shouldn’t think of a singular supply/demand graph receiving inputs from both airports, which would set the overall price of a ticket. There will just be two graphs where supply and demand intersect at the price/quantity, which will fluctuate uniquely for each airport.
You are correct; in a scenario where the ONLY discriminatory factor is size/volume of business and either airport introduces a price change, that will theoretically drive consumers to the other airport, assuming they have the productive capacity to hold it.
However, this is where it’s important to remember that almost all of economics theory is formulated under some set of assumptions, simply because creating a comprehensive model of every single variable is impractical and some are intangible by nature. So even though we can’t model every single variable into our supply/demand graph, we can discuss ones that would potentially have the largest impact:
– Economies of scale. The larger airport operates much closer to its peak productive capacity, which itself is already higher than the smaller airport’s. Making more money, while *proportionally* having to invest much less of it back into staff, infrastructure, maintenance, etc, leads to lower prices.
– Amenities. Because of the higher volume of foot traffic, the larger airport has the ability (and space) to attract businesses like restaurants, car rental companies, and vendors. All of these businesses pay to rent space in the airport, further contributing to the ability to lower costs.
– Competition. As others have stated, a lack of competition is bad for the consumer’s wallet. Two gas stations on the same corner will have more incentive to charge a fair price if their customers can simply go across the street to their competitor (the reasoning why they’re always next to each other is a separate economic phenomena).
– Reliability. Or the ability to plan for contingencies. For example, a small airport with one runway won’t have many options if a snow storm hits and it needs to be salted and plowed. The larger airport might have the capacity to re-route flights to a less affected area of the airport to avoid delays and negative consumer experiences.
– Consumer bias (at least in the US). Especially after the 9/11 attacks, the public has become increasingly skeptical of airports with smaller/less technologically advanced screening systems (even though most of it has been proven to be “security theater” anyways).
– Smaller airports often have shorter runways, which require more experienced pilots to execute landings. While not directly price-related, it affects an airline’s willingness to conduct business with an airport.
I’m sure there are many more that I’m failing to think of, but you get the gist. The bigger airport can retain its revenue much more efficiently while also delivering a higher quality consumer experience.
A variety of reasons:
1) Bigger planes are more efficient per passenger in terms of fuel, and cheaper to fly in terms of crew cost (flying a 100 seater means you need to pay one pilot per 50 passengers, in a 300 seater you only have to pay one pilot per 150 passengers. Even with a relief pilot, it’d still only one 1 per 100 passengers)
2) Bigger Airports have more competition, which drives prices down
3) at bigger airports/hubs the airline often has their **own** check in/ground handling staff as well engineers/maintenance, whereas as at small/non-hub airports those things are often sub contracted, which is more expensive for the airline
4) Flying between large airports means a larger demand for carge transportation, which is a large profit driver even for passenger airplanes
A variety of reasons:
1) Bigger planes are more efficient per passenger in terms of fuel, and cheaper to fly in terms of crew cost (flying a 100 seater means you need to pay one pilot per 50 passengers, in a 300 seater you only have to pay one pilot per 150 passengers. Even with a relief pilot, it’d still only one 1 per 100 passengers)
2) Bigger Airports have more competition, which drives prices down
3) at bigger airports/hubs the airline often has their **own** check in/ground handling staff as well engineers/maintenance, whereas as at small/non-hub airports those things are often sub contracted, which is more expensive for the airline
4) Flying between large airports means a larger demand for carge transportation, which is a large profit driver even for passenger airplanes
A variety of reasons:
1) Bigger planes are more efficient per passenger in terms of fuel, and cheaper to fly in terms of crew cost (flying a 100 seater means you need to pay one pilot per 50 passengers, in a 300 seater you only have to pay one pilot per 150 passengers. Even with a relief pilot, it’d still only one 1 per 100 passengers)
2) Bigger Airports have more competition, which drives prices down
3) at bigger airports/hubs the airline often has their **own** check in/ground handling staff as well engineers/maintenance, whereas as at small/non-hub airports those things are often sub contracted, which is more expensive for the airline
4) Flying between large airports means a larger demand for carge transportation, which is a large profit driver even for passenger airplanes
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