I don't get it. . . .
 

I am happy with my airfare price that i purchased yesterday but here is what I don't get. I live in central WI. MSP is exactly 3 hours away. MKE is exactly 3 hours away. ORD is about 4.5-5 hours away.

Anyhow, I am looking for airfare to FLL or MIA and NWA came up as the cheapest. 4 people from ORD to FLL for $623 r/t. I am happy with that. However, the flight goes from ORD to MSP first, then onto FLL. I thought it may be cheaper to go directly from MSp to FLL but when I checked, it was about $400 more total for a direct flight from MSP.

Why would it be cheaper to go from ORD/MSP/FLL than to MSP/FLL? Sorry if this is is stupid, but I only fly once every 12-18 months or so.

Basically, NW owns the MSP market so they can charge higher prices. They are competing against UA/AA in Chicago and hence lower their prices for that market to be more competitive against the nonstop of the other airlines.

the answer
 

In simplest terms:

a) ORD is a hub for UA/AA, while MSP is a hub for NW
b) to ensure competitiveness with UA on a route ORD-FLL, which AA/UA probably flies non-stop (too lazy to look up right now :D) NW is offering a cheaper one-stop flight. However, as they are offering a non-stop flight from MSP, they can "cash-in" on the convenience for travelers starting there. You could quite likely fly on AA/UA MSP-x/ORD-FLL on a fare similar to NW's ORD-x/MSP-FLL

+ whole bunch of revenue management adjustments and policies that nobody truly understands by now, probably even NW

Thanks for the quick responses. Makes a little sense to me at least.

Regarding specifically ORD-FLL, the route is flown by only AA and NK (UA does not serve FLL at all). However, the bigger picture is really that NW is competing in the Chicago-Miami/Fort Lauderdale/West Palm Beach market, which includes many non-stop flights operated by AA, UA, WN, and NK (Spirit). It is a very competitive market, to say the least.

Checking a few random date samples, all four of those airlines offers a $139 r/t fare for non-stop flights. Additionally, US and FL (AirTran) both offer one-stop service at $140 or less. So, while there is no reason at all to complain about ~$155 per person to fly on NW, they are still charging a fare higher than everyone but DL, CO, and B6 for the route.

As mentioned before, though, only NW operates MSP-FLL flights non-stop. The overall MSP-MIA/FLL/PBI market does have competition from SY (seasonal to MIA and PBI) and AA (to MIA), but overall, NW largely controls this market. They have the ability to charge a premium to its captive MSP customers who want non-stop flights and want to earn NW miles. This is a different situation from Chicago since no fewer than three carriers (AA, UA, WN) are always battling each other for the loyalty of CHI-based fliers.

All of this soon to change when WN starts flying MSP to MDW. Simple to catch any number of flights including FLL from MDW.

It has to do with being "competitive" in a particular market, with the market being determined solely by the endpoints of your travel.

Another example, I recently bought RST-STL-RST for $240 when MSP-STL-MSP was pricing at close to $600. From RST we did a 20 minute flight to MSP where we connected onward to St. Louis. The 100 minutes of extra driving each way was well work the ~$700 savings for two people.

For travel on or after March 8, the WN effect is already putting an end to a lot of this nonsense.

If you're equidistant from MSP & MKE & only another 90 mins. from ORD (perhaps < the time you would spend connecting somewhere), you should have a fairly competitive choice relative to what we get here in MSP, you just have to drive a few miles in one direction or another to take advantage of it.

He definitely should look at this. MDW is another 30 mins. south of ORD, so that puts his drive at 5 hours, BUT WN connection times seem to be a bit longer than DL/NW's. As long as traffic is ok, driving to MDW probably would be faster. Connecting MSP-MDW on WN normally will cost up to $80 each way.

did all of you fall asleep in Econ-101, its called simple price discrimination, The seller will always try to charge what the purcherser is willing to pay for. couple that with a oligolpolisic market structure NW has in MSP, that creates very inelastic demand, whith mean if prices are lower than what it is right now, NW can increase ticket prices by 1% and have the quantity demand drop by less than 1%. By having their fare structure based on city pairings they can segment the market and charge different prices for each one. Its acturally a very efficent and relatively fair way for the airline industry to function, minimizing total dead weight lost in the entire industry.

If you want to fly segment by segment, then go fly WN, but I acuturally argued in one of my thesis papers that WN is making a profit by indirectly destorying the airline industry, and if it was up to me, should be banned from operations. but i won't go into details, unless you want to read a 76 page post.

I will agree that WN is indirectly helping to destroy the domestic airline industry, but it does so by offering a competitive product at a reasonable cost. The legacies try to extort high fares by limiting availability; WN tries to stimulate demand by offering lower fares and then providing the capacity to accommodate the increased demand.

It works. WN has reported 71 consecutive quarters of operating profits.

No, but I still flunked it.

1. how of that profit came from highly risky fuel hedging.

2. how much of a loss did that cause the rest of the airline industry, they increase their profit by a hundred million so the rest of the industry can lose a couple of billion, do you think that's good for the economy?

3. WN adjusts their capacity on each route by changing the number of plane they put on the route, not the size of the plane, so people who fly them offten have to pick schedules that they don't really want, that looks alot like dead weight loss to me.

4. WN takes the low-rev capacity-filling passengers from normal airlines, forcing them to decrease capacity and lose their effiecenies with economies of scale, which mean the reaminng seats are more expensive, so WN is benifiting a small number of people by screwing with a large number of people.

1. Fuel supply & cost is a crucial concern for every airline. WN has excelled at this.

2. The weak & inefficient need to die off. At some point more of these companies need to get DNR orders instead of bankruptcy stays.

3. Having just one variant (actually there is a 2nd 737 variant used mainly within TX) greatly reduces their training & maintenance costs. Impact on pax? If their schedules don't meet your needs, pick a better airline.

4. So screw with 'em, just like you said! In the end, its a question of the survival of the fittest & most solvent.

In terms of the # of pax carried, WN is the largest domestic American airline and was the largest airline world-wide until DL acquired NW. In all likelihood, it's only a matter of time before it becomes the largest in the world once again.

It's normal for the little guys (other airlines & their fans, in this case) to take shots at #1, so don't hold back, but also don't think that WN really cares. They're sticking religiously to the model that's kept on working for them.

you should go work for WN, see the problem with WN is that its passengers don't really look in the future, other other people, or economic effects. The thing is, each WN passenger that saves $20 will have indirectly increase some other bussiness traveler's fare by around $40, frankly, that's not efficent for the "society as a whole". Adam Smith fails again!

I'll try to simplify an example and post it, give me a few minutes.

You know what, I almost never fly WN because provide the kind of services that I want. However, it's not their role to fix the worlds problems. They should do what they need to do to make a profit and let the competition worry about themselves.

Don't get me wrong, some of the things you say are true. In fact one concept that I have never completely grabbed from my series of economics courses is when a party (WN) deliberately underprices the market price and what that does to stuff. I have thought about this specifically from the WN standpoint for years. I need help from Professor Spector but I haven't seen him in 20 years.

ok, let say there are only two types passengers, passengers "B" are bussiness traveler and passengers "L" are a leisure traveler, traveling from airport AAA to BBB.

"B"s are willing to pay at most $600 for the ticket, and "L"s are willing to pay at most $400. if NW is the only airline, they would like to charge each passenger for what they are willing to pay, but they can only price discriminate to a certain extent. so, they charge $450 for "B"s and $350 for "L"s, ad let say their cost per passenger is $300, so the airlines make profits, and consumers also have a surplus.

Now WN comes in, and since their costs per passenger is only $250 per passenger, they offer a fare at $300, and all the "L"s take that fare instead, but the "B"s because of schdeules or connections or what ever reason can't fly WN, so they stay with NW. Since the only passengers left on NW are "B"s who are willing to pay $600, they are charged $600 for the ticket, and since NW have decrease their capacity because they just lost half of their passengers, their cost per passenger just went up to $450.

Here's a summary of what happened:
before WN:
NW gross profit = 150+50 = 200
"L" consumer surplus = 50
"B" consumer surplus = 150

Total = 400

After WN:
NW gross profit = 150
WN gross profit = 50
"L" consumer surplus = 100
"B" consumer surplus = 0

Total = 300

Now obiously this isn't even close to being perfect model, but its just an example of some of the ineffiencies a LCC can create.

And for all of you that says "screw the bussienss travelers", keep in mind, "B" passengers could be anyone that's traveling on a fixed schedule or flying to/from a airport not served by WN.

Hope i didn't bored anyone to death.