When JetBlue announced a new $7 charge for pillows and blankets, I thought you might be interested in some comments from Harlan Platt, Ph.D., a finance professor focusing on the airline industry at Northeastern University’s business school. Note that he references United Airlines recent earnings report showcasing their hidden strength:
“There are two ways to raise prices: directly and indirectly. The direct way simply increases the price and the consumer notices it. The indirect way increases prices in ways that the consumer does not notice when they make their purchase decision,” Dr. Platt states. “Direct price increases piss off the consumer immediately and may cause a sale to be lost; an indirect price increase pisses off the consumer later. Given that higher fuel prices are requiring airlines to raise prices they are advised to use the indirect method to avoid losing market share to airlines using the indirect method.”
“No one likes the higher fares (either direct or indirect) but air travel still is the preferred way to get from here to there. Unless oil prices continue to fall air travel will become a luxury good available to the middle class only on special occasions. The death of an airline (we've lost 5 so far this year) accelerates the move to a luxury good status as legacy carriers take advantage of the reduced competition to raise prices.
“Notice the hidden strength in United Airlines' earnings report. They have plenty of cash to weather the storm as higher ticket prices have increased revenue and cut backs have reduced costs,” Prof. Platt concludes.
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