knope2001

There can be a large fare premium even if fares are exactly equal. Here's an illustration I've used before to demonstrate this.

Let's say these are the fares for MKE-LGA

$69 discount fare when periodic fare sales run
$119 discount fare when no sale running
$194 short notice fare (not meeting requirements of discount fares)

For the sake of argument, let's make all else equal:

--Both airlines exactly match each other's fares
--Both airlines keep enough inventory open so never is airline A sold out of a fare which B still has.

So we have a case where every single person who purchases MKE-LGA finds the same fare when they book no matter which airline they pick. You'd think that fare between AirTran and Midwest would be equal. But the distribution of fare class sold by each airline makes all the difference. Let's say this is the breakdown:

$69 fare
40% of all Midwest tickets sold
65% of all AirTran tickets sold

$119
45% of all Midwest tickets sold
33% of all AirTran tickets sold

$194
15% of all Midwest tickets sold
2% of all AirTran tickets sold

At these fare breakdowns...
$110.03 Midwest average fare
$88.00 AirTran average fare

That's a fare premium Midwest over AirTran of 25% even though not a single person ever paid more for a Midwest flight when a cheaper AirTran flight was available. This is of course just an illustration and not an exact fare or fare bucket breakdown. But it shows how one airline can have a significant fare premium without anyone deliberately choosing an airline with higher fares. And is goes a long way to explaining the Midwest fare premium. For years people have mistakenly believed the fare premium was tied to better onboard product, and every time something changes about that they sounded the death knell for Midwest's revenue advantage. Yet year after year it persists. And yet the death-knell-sounders don't re-evaluate their position.

So why would AirTran get disproportionately more people booking at lower fare levels than Midwest?

--Business traffic tends to book at the higher fare buckets, and they are more likely to be frequent flyer mile addicts than lowest-fare travelers. Midwest's FF brand generally has more utility for MKE-based travelers, is the long-term incumbent, and overlaps with NW/DL.

--Frequency and timing tend to be more important to business travelers as well.

--AirTran tends to run larger, less frequent flights, and that tends to favor a need to fill seats with low-fare stimulated traffic. Even if they do sell exactly the same number of tickets at the high fare buckets as Midwest, their average fare would be lower if they have to sell more cheap seats to fill the back.

Undoubtedly there are some instances where people do willfully choose something other than the very lowest fare. But even back in the days when the 717 was all 2x2, if people chose a more expensive Midwest flight it was primarily about schedule, corporate contract, or frequent flyer miles. Not usually onboard product. Midwest has never realized a large benefit of many people willfully choosing to pay more for the premium onboard service. Not zero benefit, but nowhere near the benefit one might expect. People generally won't pay for it and never have. That's why every other airline which has attempted the premium service niche has failed quickly, because they were built to rely on the idea people would pay more. Same with just about every onboard enchancement airlines have offered but not charged for, like American's more room in coach experiment.