How a Cheap Airline Can Be Expensive

If U.S. regulators approve a Frontier-Spirit match, the combined version of the two ultra low-cost discount airlines would become the fifth largest in the industry:

As an ultra low-cost discount airline, Spirit has charged $46 for a Newark NJ /Fort Lauderdale Florida round trip ticket. But it’s just for the seat. From there, it can cost you much more.

Discount Airline Fees and Food

The carry on? Either $43.00 when you book online or $73.00 at the airport. To print your boarding pass at an airport kiosk is another $2.00 and $10.00 if an agent does it. Some water ($3.50) and pretzels ($4.50) during the flight? Another $8.00.

Below, you can see two pages from the Spirit inflight menu:

In addition, you might want to pay extra for a”Big Front Seat.” Because Spirit Airlines “pre-reclines” seats, they can fit more people on a plane. More seats mean more fares for them. For us, it’s a half-size tray table, minimal legroom.

Our Bottom Line: Marginal Analysis

With most airlines, your ticket buys you a package. You get a seat, a snack, a full size tray, maybe more. The ultra low-cost discount airlines see it differently. They look at the margin.

Defined as the place where we get something extra, economists say we frequently think at the margin. Ranging from extra sleep to extra chips, we are constantly assessing whether more is worth it. Similarly the discount airlines offer barebones tickets. Then, moving beyond, they create a slew of extras we can pay for at the margin.

As economists, the wisdom of thinking at the margin takes us back to Alfred Marshall. Remembered as one the first marginalists, Alfred Marshall was born near London in 1842. He was reputedly influenced by an excessively rigid father who required hours of study each night. Sounding rather eccentric, Marshall said that he needed to rest from his work every 15 minutes or so to be sure he was refreshed. During “rest” breaks, he read Shakespeare and Greek plays. As a chair of Political Economy at Cambridge for 23 years, his contributions to the study of economics were massive through his classes, his books, and the eminent economists he taught.

Among his many insights, Marshall told us that margins make a difference. Think of the law of demand. Step by step, as price marches upward, your incentive to spend goes down. But it slides downward by increments. Similarly, he constructed a supply curve through the marginal costs of production. His conclusion, considered revolutionary, was that value comes from both demand and supply. And it all took him back to the margin.

As do the ultra low-cost discount airlines.

My sources and more: Yesterday’s walk (5 miles) was much more pleasant because of this Journal podcast on discount airlines. From there, I checked the Hustle, and WSJ, and CNBC for more facts. Then, I learned all you could want to know abut the “Big Front Seats” at ready jet roam. And finally, I read about Marshall’s life and ideas through a J.M. Keynes essay.