Why an Airline Seat Is Like a Hotel Room and a Disney Ride

During the first quarter of 1996, the average domestic airline ticket price was $284 while last February it sunk to $260. Although prices are even lower when we adjust for inflation, still, airline revenue has grown.

Seeing this happy contradiction, hotels and theme parks are trying to recreate it.

Extra Fees

If you opt for nothing extra, then your flight can be pretty cheap. But, it’s no big bags, no leg room, no early boarding, no reservation changes.

Similarly, some hotels have begun experimenting with early check-in fees. And yes, you can swim, but it might cost $25. Late check-out? Another $20. However, by only paying for your discounted room rate, you get a really good deal.

At Disney World, too, you can get a better deal by avoiding the extras. But, saving $15, you sacrifice the wait time benefits of the lightning lane.

Our Bottom Line: Elasticity

When anyone mentions airline seats, hotel rooms, and Disney rides, please think of a rubber band.

For some people, the quantity they demand will stretch or contract a lot based on price. The lower the price, the more likely that they will book a flight, a room, or a Disney visit. As economists, we say that their price elasticity of demand is elastic.

Meanwhile, other individuals display inelastic demand. Whether booking a flight, reserving a room, or planning several days at Disney, certain families care little about what they spend. Our best example, though, is the pre-pandemic business people that traveled consistently. Less flexible, with firms that covered most expenses, business travelers ignored pice changes. Whatever the cost, they went.

You can see why elasticity and fees are friends. With discount room rates and fares, hotels, airlines, and Disney theme parks retain the price conscious elastic traveler. But for a revenue boost, they need the inelastic crowd that pays fees.

My sources and more: The Middle Seat column at WSJ is the perfect combination of airline industry facts and good stories. As for today, the facts on extra fees in this post were based on Middle Seat articles, here, here, and here. Also at WSJ, this article and this podcast compared new hotel fees to the airlines. Finally, the NY Times discussed the Disney connection.