Doesn’t need a plane a lot more human and nonhuman resources to transport a person than a train or bus?
In: Economics
The structure of the industry leads to this.
1) A lot of the infrastructure for flying is partially funded by governments. The airlines don’t bear the cost of this.
2) Airlines are a form of industry with very high capital costs but relatively low marginal cost. Once the airline has committed their expenses, it makes sense for them to fill every seat. In the worst case (for them) this leads to marginal cost pricing.
3) State subsidies or state owned airlines. A lot of airlines are also state run – which is disadvantageous to fully private firms. These state owned firms usually have a quasi monopoly on domestic routes (which absorbs operational costs) This works as a form of subsidy for the flight routes that they actually have to compete with. Since the competition is higher than it might otherwise be, it leads to lower pricing.
4) Seasonality of demand. This means that airlines generally have a lot of spare capacity in aggregate when in off-season. Coupled with (2) and (3) this means prices will be lower.
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