New economics of AA
 

So I've been living overseas for a long time and recently moved back to the States. I am perplexed by the manner in which AA has apparently reconstructed the ability to mix and match international fares. It also seems much more difficult/expensive to make changes -- even when making a change would work in the best financial interests of the airline.

Specifically as to the latter, I am booked on a flight to Europe on Monday in discounted PE with a SWU request for J. Since the time of booking the flight has sold out in F & J and is starting to go oversold in Y & PE. There is a flight leaving on Sunday that has more than a dozen open J seats and has, at minimum, full (EF) display inventory open in the back of the bus. Despite this, AA will only switch me to Sunday if they can charge me 150% of the entire ticket value due to the system forcing the higher (no advance purchase) bucket. No joy from Tariff, tried that already.

I don't see any way that this makes ANY financial sense to American. There's a pax on an oversold flight who wants to change to a half empty one for the purposes of consuming a liability (SWU). Why not just take my $275 and waive the obnoxiously rapacious fare difference for lack of advance purchase? At this stage with a probability bordering on certainty, I am going to be on a full flight in PE and they're probably going to have to offer compensation to whomever they bump in the back. In what world is this financially rational?

Perhaps I am missing something here? Thoughts?

Because there's likely a decent chance at least some on full fare tickets cancel and/or others no show. All the airlines model this quite closely based on historical metrics. Plus, it's likely at least someone will take a voucher to be bumped. I've been on many oversold flights lately, and, after making the announcement, either enough no show or enough take the relatively low value voucher.

because the airline operates on a broad rule, rather than empowering thousand of agents to make decisions ad hoc.

and the broad rule is that forcing a refare on changes before travel does maximize revenue by preventing gaming of ticketing on cheaper flights when intending to travel on pricier flights.

Just because a flight is currently oversold today doesn't mean that it will be oversold on Monday, in fact your flight may go out with empty seats it is hard to know for sure until the moment of departure. So in the end AA might not have to VDB or IDB anyone, therefore no cost to AA.

Also it probably would not be in the best interest for AA to have you use a SWU, when they could sell the empty seats on Sunday's flight as DoD upgrades. AA's hope is that SWUs go unused, just as retailers hope that gift cards go unused. i.e. extra money in their pocket. Defiantly not customer friendly, but that's the world we live in.

Look, I started business flying in 1978 when fares were regulated and point-to-point fares were the same for all the airlines. I travelled with a stack of AAirchecks which any airlines would take. I could walk to the gate of any airline, ask if there was a seat and literally write my own ticket. While I used AAirchecks, I rarely flew AA then. I was Eastern/Delta N/S out of Boston and TWA transcon/TATL. If a meeting ran over and I needed to miss a flight, I would look up the next flight in my pocket OAG, call my secretary (yes, that's what we called PA's then) and have her book me on it.

But de-regulation and loyalty programs totally blew up that model and we've been in that new model since then. Frankly, the "new" economics of AA (and all the other airlines) have pretty much been baked in since then (say early 1980's). While I agree at your comment that it is irrational on a tactical level, the airlines have pretty much concluded (and colluded) to make the rigidity of that irrationality a strategic cornerstone of their pricing philosophy. De-regulation opened the door to tiered pricing and the only way that worked for the airlines was with reducing flexibility.

This new model is less flexible but it delivers great value for a smart/savvy traveler who is willing to play the game.

Which flight are you booked on? There is not a single four-cabin flight (since you mentioned F, J, and PE) that is oversold in PE and Y on Monday. AA20 DFW-LHR is close, but still has 16 seats in Y.

As an above poster mentioned, what's oversold one day can certainly change from one day to the next.

My thought is that at the moment you want to make a change to a flight and AA at the moment has no need to ask for people willing to be rebooked

As such , the only one that wants the change is you and AA , unsurprisingly, is wanting to charge for it

The policy is to make money, not sense. Be assured that the $275 they could be taking from you is dwarfed by the $$ they will be receiving in walk ups and flight changes.

Suppose you are selling fish at the fish market for $5 a pound It's closing time and you are going to have to throw away 10 pounds of fish. I walk up and offer you $4 a pound. You'll probably take it. Suppose I offer you $4 for the whole 10 pounds. Although you are clearly better off in this one transaction to take the $4, you may be worse off in the long run if you encourage me to not come to buy fish until closing time. On the other hand, if you know I'm from the soup kitchen and I can't ever afford to pay $5 a pound for fish, you might sell them to me at a deep discount not just out of a sense of charity but to maximize your own profits.

Profit maximization can be a complex topic, and price discrimination (not racial/gender/etc. but related to the demand curves of individual purchasers when you're able to segregate them by their own demand function) plays into it.