After many a sine, cosine, squiggle and other tools of the economist's dismal science and troubling trade, a professor has reached the conclusion (sit down, please, wait for it) that some airlines have higher fares than Southwest but that some airlines actually really have lower fares than Southwest.
Professor Volodymyr Bilotkach, who teaches his equation-inclined trade at the University of California at Irvine, says that comparing Southwest fares with all fares on Orbitz and focusing in on last-minute fares, that sometimes Southwest fares are higher than those on Orbitz fares are lower. Professor B says he embarked on the study because Southwest has a reputation for low last-minute fares. That's news, but with Southwest attracting more and more business flyers, maybe he has a point.
Because Southwest is essentially an on-line airline and Orbitz
is an on-line presence, he can argue that this is a good question. He found that overall Southwest's lowest advance-purchase fares averaged 2.7% below the cheapest comparable tickets on Orbitz. But, he says, for last-minute purchases, the Southwest fares are about 8.5% higher, and that about half the time, Orbitz offered a cheaper ticket. "when it comes to last-minute fares, Southwest's prices are about normal", he says, cautioning that "Southwest exploits its low-cost reputation with last-minute travellers who feel they don't have time to shop around even if it's just a few extra minute". Southwest and other airlines may ultimately take advantage of customers who bypass comparisons by going straight to their favourite carrier's website, and "I'm concerned that this force may drive up airfares", he said.
We've learned never to argue with people who know how to use the word 'stochastic' or work a slide rule, so we'll not quibble with the good professor's interesting contention that Southwest has a reputation for low last-minute fares, nor we will we quibble that he ain't really addressed the (admittedly subjective) questions of how and how much people value their time, and so hasn't addressed the issue of choice, that possibly flyers may knowingly pass up the chance to get a lower fare in return for the time savings of not having to click and click and click to go shopping.
But the bottom line is what I like to call 'The Troutman Syndrome'. Troutman was a wise old guy who used to cover airlines for one of the wire services in Washington, and one day he was at a DoT briefing with future former Secretary of Transportation Federico Pena (left). Also known as the Mayor of Denver and the Secretary of DIA (Denver International Airport), Pena was introducing a study called 'The Southwest Effect' that demonstrated, conclusively though the use of bar charts, fever lines, and diagrams, that Southwest had lower fares than some other airlines, and that sometimes other airlines lowered their fares to compete with Southwest. Mr. Pena was very excited about this finding, waving his arms in a manner reminiscent of Neil Kinnock or Huey Long giving an inspired speech to the masses. Troutman, who had just won the lottery and so was ready to retire, felt that some reality check was needed. So he raised his hand and said, "So in other words, Mr. Secretary, some people pay more and some people pay less?" Pena was dumbstruck. He stood still, possibly for the first time in hours, if not days, and, his mouth hanging slightly open, turned to Troutman and said, "Well, yes, but...". So, Professor B., "Well, yes, but...".
on May 9, 2007 11:10 PM | Reply
ok, so here is a (question?) to me, so i feel i need to answer it, even though it did not directly land in my mailbox.
my study is really not about Southwest (even though finding out smth interesting about WN does get you some publicity); rather, it is about differentiated products and airlines' efforts to sell as many tickets as possible via their own web-sites. the carriers will normally cite cost saving agruments for doing so, but to an economist (no math required, just common sense) this is a way to differentiate the product, and the more differentiated the products are, the higher the prices, other things equal. so, i figured it will be an interesting thing to study an airline, which already sells tickets via its web-site, and Southwest happens to be such an airline. and what i found confirmed my predictions - differentiated products do lead to higher prices. true, sometimes you will pay more if you buy from southwest, sometimes less, but if you compare before you buy, you will definitely save some money - again, common sense, but economics is mostly the painful elaboration of the obvious. and, while teaching economics i often find that obvious does often need to be elaborated to be understood.
questions - send them directly to me, i will be happy to address (that's what scientists do - they address questions, not answer) them.
on May 9, 2007 11:13 PM | Reply
ok, so here is a (question?) to me, so i feel i need to answer it, even though it did not directly land in my mailbox.
my study is really not about Southwest (even though finding out smth interesting about WN does get you some publicity); rather, it is about differentiated products and airlines' efforts to sell as many tickets as possible via their own web-sites. the carriers will normally cite cost saving agruments for doing so, but to an economist (no math required, just common sense) this is a way to differentiate the product, and the more differentiated the products are, the higher the prices, other things equal. so, i figured it will be an interesting thing to study an airline, which already sells tickets via its web-site, and Southwest happens to be such an airline. and what i found confirmed my predictions - differentiated products do lead to higher prices. true, sometimes you will pay more if you buy from southwest, sometimes less, but if you compare before you buy, you will definitely save some money - again, common sense, but economics is mostly the painful elaboration of the obvious. and, while teaching economics i often find that obvious does often need to be elaborated to be understood.
questions - send them directly to me, i will be happy to address (that's what scientists do - they address questions, not answer) them.
on February 10, 2010 10:51 AM | Reply
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