Airline Pricing for the Truly Desperate

Outrage! British Airways is selling full price seats on aircraft instead of giving them to stranded passengers. No doubt this secures multiple advantages to the airline. But its effect on passengers must be thought through, and examined empirically. By default, I'm not against the pricing scheme, unless I know how it really affects allocation.

The first question in allocation is, "who should get the seats?" And many people in this situation default to a first-cancelled, first-rebooked standard. However simple, and deceptively fair, that is clearly not an efficient allocation. We want the most desperate home first, no?

The whole point of an allocation system is to measure desperation, and BA's pricing is one way to allocate tickets to those most desperate. I could even say that using sky-high prices to hold some seats open to the highest bidder is remarkably fair.

Yes, BA's pricing does favor those willing and able to pay full fare over those willing but unable to pay full fare. But that doesn't imply those able to pay are less desperate than those unable. And more importantly, it lets people who weren't previously booked and cancelled the opportunity to fly soon if they are truly desperate.

In the end, only by leaving seats for sale at the highest prices, will there be substantial numbers of seats open for those truly desperate enough to wait in the airport on standby. So, by setting high prices for a limited number of seats, the BA scheme winds up discriminating between two types of people who are unable to pay: those willing to wait on standby and those unwilling to wait.

Is there a better way to measure desperation without a price signal?

Now, I should note that, if flights are returning half empty, than BA is absolutely incompetent, and deserves to go bankrupt.

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This page contains a single entry by Kevin published on April 23, 2010 7:17 AM.

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