Airfare: How does this make sense?

The same way it makes sense for a flight from Shreveport, LA to ATL to cost the same, even though I'm at least half the country closer to ATL than you.

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Booking flight from LAX to BHM w/ 1 stop in ATL - $219
Booking flight from LAX to ATL - $240

How does this make sense to the airlines industry? Does Birmingham pay people to fly to their airport and the airlines pass along those savings to the passenger?

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Supply + demand

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just ditch the second leg of the flight.

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I would but I have baggage. Can I cancel my other flight at the counter?

But back to my original point, how does it make sense to charge a cheaper price for additional service? Is this why airlines go bankrupt so often?

A guy I worked with this summer worked for American Airlines in the FP&A group and he tried explaining the airlines pricing to me....because I asked the same exact thing.

He said that basically they have tiers that they grade with letters..that is essence "slot" a certain flight to a city. The flight in each "slot" has to be a certain price no matter what unless the financial team/whoever for the company determines the slot adjusts it.

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look for flights with "layovers" in places which are actually your final destination and then just ditch the second leg of the flight.

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Only works if you have a one way ticket. If you have a return flight it will be cancelled.

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What does that have to do with paying me $20 to fly to BHM?

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Maybe the airports charge the airlines depending on whether or not the passenger is just passing through or terminating. Airports with a higher % of people just passing through need less external infrastructure.

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Since BHM-ATL is only served by Delta on a non-stop basis, DL can control the price point based on the number of seats available in DeltaMatic. But as long as there are seats on the BHM-ATL leg and the BHM-LAX price is still $219 on the competition, DL is going to offer that price.

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Thank you very much. Makes perfect sense now. Obviously they are wasting money, but I understand. I would like to terminate in ATL and just drive the few hours to BHM rather than wait around in ATL.

You've gotten a lot of convoluted responses about airline pricing strategy and yield management which are somewhat accurate.

The bottom line in your example is much more easy though. BHM has more competition for similar service. Delta, American, Continental and Southwest all fly the market.

Delta and Airtran are the only ones competing for non-stop service ATL-LAX so the price will be higher. If you looked atl service between the two cities on Co, UA or AA with a connection, you'd probably find that they fare is a little cheaper.

First, a summary of how ordinary hardware stores sell their paint...

Customer: Hi. How much is your paint?

Clerk: We have regular quality paint for $18 a gallon and premium paint for $25. How many gallons would you like?

Customer: Five gallons of regular paint please.

Clerk: Great. That will be $90 plus tax.

Now, imagine you are buying paint from British Airways, United, Northwest, American, Delta, or ANY other full-fare airline in the world.

First you spend days trying to reach them by phone to ask if they have paint. Nobody answers. So you drive to their store, and the conversation goes something like this...

Customer: Hi. How much is your paint?

Clerk: Well, sir, that depends on quite a lot of things.

Customer: Can you give me a guess? Is there an average price?

Clerk: Our lowest price is $12 a gallon, and we have 60 different prices up to $200 a gallon.

Customer: What's the difference in the paint?

Clerk: Oh, there isn't any difference; it's all the same paint.

Customer: Well, then I'd like some of that $12 paint.

Clerk: When do you intend to use the paint?

Customer: I want to paint tomorrow. It's my day off.

Clerk: Sir, the paint for tomorrow is the $200 paint.

Customer: When would I have to paint to get the $12 paint?

Clerk: You would have to start very late at night in about 3 weeks. But you will have to agree to start painting before Friday of that week and continue painting until at least Sunday.

Customer: You've got to be kidding!

Clerk: I'll check and see if we have any paint available.

Customer: You have shelves FULL of paint! I can see it!

Clerk: But it doesn't mean that we have paint available. We sell only a certain number of gallons on any given weekend. Oh, and by the way, the price per gallon just went to $16. We don't have any more $12 paint.

Customer: The price went up as we were talking?

Clerk: Yes, sir. We change the prices and rules hundreds of times a day, and since you haven't actually walked out of the store with your paint yet, we just decided to change. I suggest you purchase your paint as soon as possible. How many gallons do you want?

Customer: Well, maybe five gallons. Make that six, so I'll have enough.

Clerk: Oh no, sir, you can't do that. If you buy paint and don't use it, there are penalties and possible confiscation of the paint you already have.

Customer: WHAT?

Clerk: We can sell enough paint to do your kitchen, bathroom, hall and north bedroom, but if you stop painting before you do the bedroom, you will lose your remaining gallons of paint.

Customer: What does it matter whether I use all the paint? I already paid you for it!

Clerk: We make plans based upon the idea that all our paint is used, every drop. If you don't, it causes us all sorts of problems.

Customer: This is crazy!! I suppose something terrible happens if I don't keep painting until after Saturday night!

Clerk: Oh yes! Every gallon you bought automatically becomes the $200 paint.

Customer: But what are all these "Paint on sale from $10 a gallon" signs?

Clerk: Well, that's for our budget paint. It only comes in half-gallons.

One $5 half-gallon will do half a room. The second half-gallon to complete the room is $20. None of the cans have labels, some are empty and there are no refunds, even on the empty cans.

Customer: To hell with this! I'll buy what I need somewhere else!

Clerk: I don't think so, sir. You may be able to buy paint for your bathroom and bedrooms and your kitchen and dining room from someone else, but you won't be able to paint your connecting hall and stairway from anyone but us. And I should point out sir, that if you paint in only one direction, it will be $300 a gallon.

Customer: I thought your most expensive paint was $200!

Clerk: That's if you paint around the room to the point at which you started. A hallway is different.

Customer: And if I buy $200 paint for the hall, but only paint in one direction, you'll confiscate the remaining paint?

Clerk: No, we'll charge you an extra use fee plus the difference On your next gallon of paint. But I believe you're getting it now, sir.

Customer: You're insane!

Clerk: Thanks for painting with us ... next person in the line, please.

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That is a great story, please tell me you copy & pasted that!!

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Yes, that was a copy and paste.

I read it in an econ book one time. It was used to illustrate price discrimiation. I've always enjoyed it.