Warren Buffett once joked that the way to have a small fortune in airline stocks was to invest a large one. Their woes are well documented, i.e., high union costs, high fuel prices, and low fares. Here is my solution to raising their revenue, by applying a well known economic principle.
It is called Elasticity of Demand and measures how a person changes their spending or demand in response to a change in price. One example would be the heroin addict. If the price goes up 10%, he doesn't reduce his demand or desire for the product. His demand for it is unrelated to the price or is "inelastic." For a cigarette smoker, he might reduce his demand slightly to a significant increase in price. Gas is the same way; a price increase causes only a small reduction in demand for gas. The point is this: when consumers have an inelastic demand for your product, you can raise the prices as much as you want.
Airlines believe flyers will not choose to fly if prices are too high, but is that true? Yesterday, I witnessed a woman crying as she felt violated from having a stranger rub their hands on her body, in a manner she thought inappropriate. Then, I waited two hours to take off in Norfolk, because the rear door needed extra oil to engage the emergency exit chute (who knew?). Returning last night, I experienced the creepiness of having a man rubbing my backside, to make sure I had no plans to explode it. Then, we waited in a hot, stuffy cabin with some individuals in dire need of a shower, for a very long hour.
While I can remember when flying was glamourous and fun, I wonder why anybody would fly today if they didn't have to, which made me realize that the need to fly is inelastic. My need to be in Atlanta yesterday was unrelated to price. I had to be there and did not have time to drive. They should double all airfares immediately, because nobody flys unless they really have to. Revenues would double, and airlines will be healthy again.
Problem solved!
