Spring 1998

Why are airfares so much cheaper when there's a Saturday stayover?

Snap out of it! You're not going around the world. You're waiting to board a flight for Indianapolis, where you'll try to smooth the ruffled feathers of a very important and very demanding client. You just found out about the trip yesterday, so you couldn't take advantage of a discounted airfare. The full-price, roundtrip ticket in your hand cost $1200 - almost half the price of that round-the-world ticket you were fantasizing about. And that's coach, not first class.

To make matters worse, the little old lady sitting in the seat next to you paid $450 for her ticket. She's flying to the same city, sitting in the same size seat, and eating the same food you are, but she was able to plan her trip around a Saturday night stayover in Indianapolis.

Anyone who has bought an airline ticket in recent years knows that planning a Saturday night stayover and purchasing the ticket in advance can lower the airfare considerably. But why?

Airfare pricing structures may seem illogical in many ways, but it's really a question of basic supply and demand. An airline ticket is similar to any other commodity.

Let's compare pumpkins and plane tickets. A nice looking pumpkin will command top price during the weeks leading up to Halloween. But if there are still lots of pumpkins sitting around the produce stand on October 29, the vendors will start to cut their prices in an effort to move the unsold jack-o-lanterns-to-be. After Halloween, the unsold pumpkins will turn mushy, and the opportunity to sell them will be lost. They will be "spoiled goods."

The "spoiled goods." concept also applies to airplane seats. If a jetliner takes off half full, the unsold seats are, for all intents and purposes, "spoiled goods." After the plane is in the air, the opportunity to sell empty seats is gone.

And unlike pumpkin vendors, airlines would have a much tougher time cutting ticket prices one or two days before a scheduled departure. Some of them offer a type of last minute discounting when they sell stand-by tickets, but very few business travelers can wait around an airport hoping to get such a seat. Nor do business travelers often have the luxury of planning their trips far in advance. There are always urgent meetings "on the Coast" or one-day sales meetings in Chicago or meetings that have to be rescheduled for one reason or another, and these things almost always happen at the last minute.

In short, business travelers require a high degree of flexibility, and they end up paying for it. Airlines try to accommodate the business traveler's need for flexibility by scheduling three or four flights a day to a given destination. They also leave seats open for those who need to change their plans or travel at a moment's notice. From the airlines' point of view, this represents a significant cost.

Leisure travelers, of course, have a far higher degree of flexibility. Someone who wants to visit a cousin in St. Louis doesn't necessarily need to fly on a particular day. He or she can take advantage of those cheaper fares that require a Saturday night stayover, and the airlines can sell those seats that would otherwise have ended up as "spoiled goods."

Of course on any given day a business traveler might pay top dollar for an airline ticket and end up sitting next to a leisure traveler who is flying to the same destination at a fraction of the cost. This often leads to the suggestion that business travelers are subsidizing leisure travelers. But airlines counter by saying that without the leisure traveler, the business traveler would be paying even more. They maintain that there just isn't enough high-end business demand to support a full schedule that allows the business traveler such a high degree of flexibility. For example, on Saturdays and Sundays, when the business people are at home recovering from a killer week of business travel, the airlines are turning aircraft around -- flying them back to their home bases. Without leisure travelers, most of those planes would be flying home empty. That's a lot of "spoiled goods."

Bonus Question:
If you're flying to this U.S. city, a Saturday stayover will probably not reduce the price of your plane ticket. Hint: Think "high roller."

That's right! Las Vegas. There's so much demand for weekend travel to Las Vegas that airlines can fill the seats without offering an incentive.

This is the first in what we hope will be a continuing series of questions and answers about economics in everyday life. Anyone can submit a question – students, teachers, anyone. And the question doesn't need to be complicated.

Send your questions about everyday economics to:

Robert Jabaily, Editor
The Ledger
Research Department
Federal Reserve Bank of Boston
P.O. Box 2076
Boston, MA 02210

E-mail: robert.jabaily@bos.frb.org

Fax: (617) 973-3511

In return for your questions, we'll send you a bag of genuine shredded money! (Try to contain your excitement.)