This week, we offer a quick diversion from the aircraft market to the world of pricing. Should it matter to you? That depends? Does the airlines’ ability to raise fares matter? This is a great example of how the shift to premium that we all seem to welcome from a business perspective is actually taking shape - and how it could create other challenges down the line.

Who should be charged how much for a seat on a plane? It’s the age-old question, over a century old, before it was converted from “Who should be charged how much for a seat on a train?”

Airline pricing has long been a translucent practice, particularly when compared with what the flying public thinks a seat should cost. Why? Because it’s intuitive. Most people intuitively believe products and services are priced based on cost plus a profit margin.

It’s the reason everybody thought high fuel prices would raise ticket prices. It’s the same reason everybody thought it was intuitive to pay more for a ticket, which is the same reason ticket prices went up. It’s also the same reason people are frustrated that the airlines are now saying fares won’t fall with fuel.

But this newsletter isn’t about fuel. It’s about customer perception and the idea of transparent pricing.

To be clear, airline pricing is far from what anyone would call transparent - and that’s just fine. The idea that two passengers sitting in identical seats find that one paid twice the other is no longer a source of outrage it once was. The seat doesn’t cost what the seat costs. It’s priced by value.

In other words, a ticket costs what they can get you to pay, not what it costs the airline to fly.

Enter the most recent frustration consumer groups are calling the “Solo Tax.” In a nutshell, some airlines - on some routes - are charging more for a single ticket than for multiple tickets. For instance, if you were to look at a flight between DFW and CVG, departing on Monday, November 30, returning that Friday, a lone nonstop ticket on American would cost $813. However, searching for two passengers yields a fare of $573 per passenger - still more in aggregate, but a 30% discount for including your chaperone.

Why?

Consumer groups say it’s opaque pricing, charging a penalty for lone travelers. Airlines say they’re offering discounts for families.

So which is it? Is this a bachelor penalty or a family discount?

Let’s drop the airline PR context - this is a fare increase on solo business travelers without competitive options. It’s no big secret.

There is a reason I picked Cincinnati for the anecdotal example. It’s a large business market. In a former life, CVG was my home market, and I became very familiar with its unique nature. Do a search for the most expensive large markets in the country, and any that show up 20 years or older will probably include CVG in the number 2 spot. (Interestingly enough, CLT often took the 1 spot).

But why did we take the extra step to classify this as a business premium rather than simply calling it a solo tax? Because this practice appears limited to business corridors with little or no direct competition.

You’ll notice our chart above does not compare all airlines on DFW-CVG. It compares airlines from their fortress hub to CVG. There is a reason for that, and it’s not because American and United feel families between Dallas and Houston deserve a discount to fly to Cincinnati. It’s because business travelers can be charged more - and they can be charged more because there is no direct competition.

United does not charge the business bachelor tax on DFW-CVG, but it does on IAH-CVG. American does on DFW-CVG, but not between its ORD hub and CVG. Why?

Because there is direct competition on that market. The competition for United and American? Each other. This is what makes fortress hubs matter.

Other airlines have been accused of this type of pricing, though it’s key to point out that in our admittedly anecdotal analysis, only American and United showed higher fares for individual markets.

And yet, while this is obviously a solo business premium rather than any family discount, it’s not deceptive. Opaque? Maybe. Translucent? Yes. Deceptive? No.

Why? Because this type of pricing is a long-held tradition in commercial aviation. Remember the idea of the Saturday night stay requirement? You think that was to give families discounts, or to charge more for business passengers who are extremely unlikely to spend the weekend away from home? (Hint: the latter, not the former)

Airlines are very good at charging for a ticket based on how much you’re willing to pay - with little to no connection to how much it costs to fly that seat. It’s why airlines are known for losing money as much as they’re known for making it, and it works both ways. Sometimes passengers are paying below cost.

So no, this is not deceptive. This is just another way for airlines to get you to pay what the flight is worth to you, even though you may erroneously think the cost of the seat has anything to do with it.

But it IS still a problem. And this is where the idea of transparency vs. opacity comes in.

To an airline, this is efficient pricing - aligning price to value. To the flying public, it crosses over into “being taken advantage of” quickly. The difference between the two is merely a matter of perception - and that’s exactly the problem.

From a consumer watchdog point of view, this is logical-ish. It DOES make sense to offer group discounts. Even so, aligning price to value is not only acceptable; it’s kind of the point.

But if we consider WHY airlines are pricing this way in some markets and not others, it becomes immediately obvious that competition matters. You see the slippery slope down Mount Public Opinion this could represent?

Let me put it a different way - if United or American find themselves arguing with the DOJ over a potential merger with any airline (don’t even get me started about the ridiculousness of the two of them merging with each other), there is now a very clear precedent that the airlines have engaged in different pricing practices in markets in which there is no direct competition. Not just higher prices - different pricing structures.

Which brings us back to why this matters - we predict it will show up in the DOJ argument against the next proposed merger by either American or United. Airlines will always make the argument that buying a competitor actually offers added flexibility and lower costs to passengers through scale and a better network - but in the end, that’s not what actually happens. This is a perfect and clean example of why.

So, no, this isn’t really opaque pricing, and it’s certainly not deceptive. But it’s not really transparent, either. The issue isn’t whether it is classified or even perceived as a premium or a discount.

The problem is that it’s not universally applied - which makes this a pricing practice that appears to be limited to non-competitive markets.

Again, not illegal. Not deceptive. Arguably translucent. But it is used differently based on competitive presence. And THAT is the problem for the airlines that doesn’t matter…

…until it does.

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