There are two ways to look at the question: normative (should it happen?) and positive (will it happen?). What consumers want is only one of the factors which drives outcomes in an industry - what actually happens results from a complex mix of factors on the supply side and the demand side, like the industry structure, conduct and incentives. Even the service itself is less comparable than at first sight: planes normally fly one class of passenger from point to point without intermediate stops and without complications like walk-on passengers or season ticket holders. Unlike trains.
“Airline pricing” resulted from market entry by low cost operators with disruptive business models. The new entrants use yield management systems where ticket prices vary in relation to the business of the plane and how far in advance the ticket is booked. An economist would describe this as price discrimination. To a non-economist it’s another way of asking whether the supplier can get away with charging different people different prices for the same thing? Which sounds terrible to a consumer, unless you’re the lucky one who benefits from the cheaper products and services (which, by the way, are already available on trains, where a form of yield management is already happening - see my earlier posts about cheap train fares). So the question to ask may not be the normative, “should it happen?” but the positive, “will it happen?” Which means comparing the economic characteristics of railways and airlines. An initial checklist might include (among other things):
- Is the industry a natural monopoly?
- Are there significant barriers to entry?
- Is there over-capacity in the sector?
- Do industry regulators support new market entry?
- Can new entrants bring innovative and disruptive business models to the sector, especially by challenging the cost structures of existing players? Or is most of the cost base outside their control?
- Are prices subject to regulation?