Dec 19, 2008

The Kings of Price Discrimination

Airlines are well known for making a living out of price discrimination. As the Ryanair boss put it once, there will always be some who want the whole service and pay for the business class. (Did Ryanair actually start to offer transatlantic flights now?)

Anyways, I received recently one of these email commercials from KLM letting me know that they have great offers from Germany to Mexico City. I receive these offers because 10 years ago (when still having my main residency in Germany) I thought that I will be flying a lot in the future. So I subscribed to their Miles and More program: I never made it to get even a single flight for free. Clearly, I blame this on the fact that I always got better tariffs with the cheap airlines.

Anyways, so I followed the link and indeed for roughly 500 Euros they would bring me in March to Mexico City so I can have some cold tequilas....Since, I always thought about going and visit a friend there, the commercial actually caught me. So, I got somewhat more serious about this and checked what a flight from Switzerland (same airline and distance, via Amsterdam) would cost. The answer was shocking: The identical flight cost me roughly the double 1500 SFR and both are the "best price offers"!

Now, I knew for a while that it nearly always pays to travel to Germany (by train or low cost carrier) and then fly form there to your vacation destination. But 500 Euros difference is enormous for potentially 2 hours difference in a anyways long traveling time of close to 20 hours (i.e. you could just take an Easy Jet plane to Amsterdam and fly directly from there spending some more time due to a worse connection).

I believe that the reason why it pays still to price discriminate so much is that people are too lazy and in particular the Germans are known by "Geiz ist geil" while the Swiss are rather known for quality and high standards potentially looking less towards the price. Or in plain economics: Compared to Germans, Swiss put on average a higher value on time.

The question remains whether this is a cultural thing or (what my guess would be) a matter of who actually takes these flights, i.e. the share of business motivated travels to vacation travels are lower when traveling from Z├╝rich or Geneva to Mexico City than from Stuttgart or Frankfurt to Mexico. Clearly a UN dummy might also do a good job ....


Pierre-Louis said...

I see it more as something like this: Germany has more competition, hence lower prices...
i have to say though that flying through germany from geneva would cost the train ride or easyjet + night sleep in frankfurt in case one(200 euros or more?)which would mean (risk + hassle) = something like 300 predicted by rigonomics theory

Sebastian said...

I see no clear reason why Switzerland's aviation industry should have less competition, but I am happy to learn about it.
And I would put the risk and hassle more at 400 Euros. The cost of which one is willing to pay depends on your "type". The 400 Euro (for a ticket of 1000) is quite high considering you pay 2/5 of the price just because of the "hassle" well: maybe as predicted, but certainly presuming the fact that in Switzerland there are more that are willing to pay for less hassle than in Germany (otherwise the prices should be the other way around).