The Great British Airways Rip-off

student100

WiseInvestor wrote:

I thought we'd already established why it's cheaper to start your journey in another European country, because the airlines need to offer lower prices than the passenger's national airline (flying direct) to generate more business. European airlines do exactly the same thing in reverse.

But since they can afford to offer lower prices to "foreigners" than to British residents, they must also be able to afford to offer the same low prices to British residents, which would make them even more competitive, as the "foreign" airlines wouldn't be able to compete.

Consider a contrived example:

BA: Paris-New York via London: £400 (to French customers)
BA: London-New York (same transatlantic flight): £500 (to British customers)

Because, by your argument, BA have to undercut AirFrance to be able to compete in France.

Similarly:
AirFrance: London-New York via Paris: £400 (to British customers)
AirFrance: Paris-New York (same transatlantic flight): £500 (to French customers).

Again, by your argument, because AirFrance wouldn't be able to compete in Britain unless they undercut BA.


However, there's nothing stopping BA from charging British customers £400 to fly from London-New York. This would mean they would gain even more custom in Britain since nobody is going to want the extra hassle of the 2-leg AirFrance flight via Paris.
Except that AirFrance would then do the same so no French resident would want to fly the BA route via London either.

If both airlines cut their prices, they'd get less revenue in the long run, which is why they fix their prices artificially high. If there were low barriers to entry in the airline industry then in theory a new entrant could operate flights from both Paris and London direct to New York for £400 a time, and they would win custom from BA and AirFrance, forcing them to cut prices... but alas setting up a transatlantic airline is not a simple business, and so the likes of BA can get away with this price fixing.

WiseInvestor_2

student100 wrote:

But since they can afford to offer lower prices to "foreigners" than to British residents, they must also be able to afford to offer the same low prices to British residents, which would make them even more competitive, as the "foreign" airlines wouldn't be able to compete

Tailoring the terms and conditions toward a new target audience is not an approach unique to airlines. A large contingent of MSE-readers have recently focused on the credit card 'trick' known as "stoozing". Credit Card companies attempt to attract new customers with introductory offers and cheap deals that are totally unavailable to existing customers, who are saddled with huge interest rates on their borrowing! Whilst it seems perfectly reasonable for new customers to benefit from the lower prices, should everyone else suffer? You said yourself:

student100 wrote:

nobody is going to want the extra hassle of the 2-leg AirFrance flight via Paris

which is quite right. Every time I leave my house I have the choice of calling a taxi or catching a bus. One is quicker, more convenient, more direct .... but considerably more expensive! If money savers are prepared to do the leg-work (literally) then it's possible to find a better deal. Mystic_Trev has already explained how prices would soar if airlines reverted back to focussing on their home markets.

student100 wrote:

but alas setting up a transatlantic airline is not a simple business

Correct; Aircraft are expensive, fuel is expensive, pilots are expensive, landing rights are limited by cross-government agreements ... the list is endless. But none of these barriers can be blamed on the airlines, indeed UK airlines have been fighting for years to have bilateral restrictions abolished - bmi has just started services to India this week and BA are just about to go head-to-head with Virgin to Shanghai - all of which can only be a good thing for consumers.

student100

WiseInvestor wrote:

Tailoring the terms and conditions toward a new target audience is not an approach unique to airlines. A large contingent of MSE-readers have recently focused on the credit card 'trick' known as "stoozing". Credit Card companies attempt to attract new customers with introductory offers and cheap deals that are totally unavailable to existing customers, who are saddled with huge interest rates on their borrowing! Whilst it seems perfectly reasonable for new customers to benefit from the lower prices, should everyone else suffer?

You're trying to justify the airlines' actions by comparing them to a different and unrelated practice. These flight prices aren't "new customer" offers. When people get a credit card, they then end up using the same card over and over again. When (logical) people shop for a flight, they look for the best deal every time, so there's no way the airline can get "loyal" customers.
We're digressing from the issue here anyway.

WiseInvestor wrote:

Every time I leave my house I have the choice of calling a taxi or catching a bus. One is quicker, more convenient, more direct .... but considerably more expensive! If money savers are prepared to do the leg-work (literally) then it's possible to find a better deal.

Once again, this is a different and unrelated issue. (To use your analogy, we're comparing a bus that stops outside your house then goes direct into town with getting another bus that takes you round the block, drops you back outside your house, then lets you get the same bus into town: there is obviously no reason for the latter option to be cheaper).

What we're discussing is the fact that airlines can charge a lower fare to someone who travels out of their way first only to come back and catch the same transatlantic flight. There is no possible reason for it to be cheaper to fly Paris-London-New York than London-New York, when the transatlantic crossing is on the exact same flight.

WiseInvestor wrote:

Mystic_Trev has already explained how prices would soar if airlines reverted back to focussing on their home markets.

Has he - where?

And anyway, I'm not arguing as to whether airlines should only focus on their home markets. What I am arguing is that they should be forced to offer competitive prices to all customers, more than anything to encourage people to use more environmentally sound routings.

WiseInvestor_2

student100 wrote:

You're trying to justify the airlines' actions by comparing them to a different and unrelated practice. These flight prices aren't "new customer" offers

It's not a justification, rather an acceptance that businesses in all markets will offer incentives to attract new (ie European) customers - the incentive in this case being a cheaper price for their more difficult routing as they'd be required to connect through London rather than travel direct with their own National Airline.

student100 wrote:

What we're discussing is the fact that airlines can charge a lower fare to someone who travels out of their way first only to come back and catch the same transatlantic flight

That's not true. The airline has no idea how you get to the departure airport - you could fly, swim or live round the corner. How you choose to get there is your business but it most certainly won't be as part of your transatlantic journey - if you choose to fly with the same airline you'll have to make an entirely separate booking. You're effectively pretending to be a French/German/Italian resident in order to benefit from a local special offer.

student100 wrote:

Has he - where?

My apologies - it was actually AndyMe at the top of Page 2

student100 wrote:

What I am arguing is that they should be forced to offer competitive prices to all customers, more than anything to encourage people to use more environmentally sound routings.

Is that really what you want? Richard Branson has made no attempt to hide the fact that Virgin only operates to the (20 or so) most lucrative destinations, such as New York, LA and Tokyo. Many of the 160+ destinations on BA's route network are maintained for historic or political reasons even if they're unprofitable. If any attempts were made to 'force' airlines to adjust their business, routes would be axed, competition would cease and consumer choice would be non-existant!

So getting back to the environmental issue, should easyJet be allowed to sell seats between Glasgow and London for a tenner when a train or bus is far less polluting?

student100

Put simply, I want airlines to offer the same fare for someone who boards a transatlantic flight in London as they offer to someone who gets a connecting flight from some other European city to London then boards the same transatlantic flight.

Maybe this would have the side affect of meaning more passengers take their national carrier than take some other carrier on a 2-leg flight, but I don't see what's wrong with that. If BA want to compete with AirFrance or whoever, then they can lower their fares for both British and French customers so they are cheaper than AirFrance. Might start a price war, so it won't happen in a hurry, but it's what has happened with supermarkets, cars etc...

(On the subject of which, you'd consider it absurd if your local supermarket (say Asda) started charging lower prices to those customers whose local supermarket is Tesco than they charge you... but this is effectively what the airlines are doing).

On the other issue of the environment... no, of course all airlines (not just the budget ones) should be made to pay fuel tax or whatever to cover the cost of their environmental damage, just as the bus and train companies do. However with the airline industry being international this would have to involve some sort of international tax agreement (not likely to happen), or a tax only on all aircraft landing or taking off in the UK/EU - which would lead to even more complaints of "rip off Britain (or Europe)"...

MarkyMarkD

Student

You just don't seem to understand price discrimination, which is a sound method of profit maximisation for the airlines (and for any other entity which has distinct sets of customers - in this case, geographically distinct).

There's nothing wrong in what BA, or the other airlines, are doing - they are just maximising their shareholders' profits.

And if you are bothered by the environmental angle, nobody's forcing any environmentalist tree-hugger to fly to Paris to get a flight back to London to get a flight to the US - if you would rather save a huge amount of time, and the environment, pay a bit more for the direct flight.

"BA can lower their fares for both British and French customers so they are cheaper than Air France".

They already ARE cheaper than Air France, from France. And Air France are probably cheaper than BA from the UK (although actually I'm not sure that is the case). BA aren't going to gain anything by reducing UK-US fares, as hardly anyone (a very small percentage) bother taking the indirect and sometimes cheaper flights in any case.

And BA DOES offer cheap UK-US fares, at certain times of year and certainly to those who book well in advance.

student100

Actually, I do understand what price discrimination is.

I also understand what a negative externality is. There is an external cost of a flight which is not borne by the airline or by the customer - it's borne by the environment. This results in market failure - meaning market forces alone don't allocate resources in the best way possible.

Usually these market failures are "corrected" (at least that's the aim) by government intervention. Hence why car drivers have to pay road tax, waste disposers have to pay landfill tax, and so on... Which is why I was suggesting a similar tax on airlines is needed.

There is something "wrong" with the way airlines currently price their flights - and whilst the price discrimination by geography in itself isn't inherently wrong, the effects it has on the market are, as it results in greater negative externalities.

budgetflyer

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BA and Air France imo are entitled to charge whoever. whatever they want.The customer always have the right to buy or not to buy. There are always alternatives if one wants.

WiseInvestor_2

student100 wrote:

Usually these market failures are "corrected" (at least that's the aim) by government intervention. Hence why car drivers have to pay road tax, waste disposers have to pay landfill tax, and so on... Which is why I was suggesting a similar tax on airlines is needed

Social taxation has been proven to have little or no effect on behavioural spending. Even though we're continuing to suffer high pump prices, drivers are still not being tempted out of their cars.

As 'full service' airlines like BA make the majority of their revenue from business customers, implementing further taxation would unlikely alter demand and would simply result in all of us paying more - both for our seats as leisure travellers and for the products supplied by whatever company the business flyer works for.

The aviation industry has been strangled by government intervention for far too long - only in most countries it results in protectionism and subsidies, thereby distorting competition and ultimately hurting the consumer. It has been rumoured that at least one European government has been booking large numbers of full fare tickets on it's National airline which are then recorded as "No shows" on the day, in order to get around an EU ban on state aid. And then there are the outstanding EU Court judgements on the potentially illegal cash injections received by Ryanair, Alitalia (again) and Olympic.

Just this week EU finance ministers agreed on a "Development Fund Tax" on airline tickets to raise money for Third World nations. The cost of implementing, collecting and administering this tax would also fall to the airlines. However, the tax will be voluntary across Europe and will almost certainly not be implemented in most of the 25 member states. It will be up to Gordon Brown whether to further disadvantage British airlines by mandating it here in the UK. If he goes ahead, British travellers will pay more to fly!

pin

Even more tax on airlines, on top of landing charges, airport taxes and increasing fuel costs. Yep great way of putting up fares. You think the airlines are going to absorb any taxes? It will only be passangers who will have to pay more.

I should add I have a feeling this thread is going to rumble on. However I do enjoy a good debate!