ABSTRACT
The policies and practices of United States airlines with respect to air travel demand and pricing are both interesting and significant. Pricing and output determination for airlines is as much an art as a science. Airlines routinely adjust advance purchase requirements on excursion and discounted business fares. Advance purchase cutoffs are one of the key "fences" airlines erect to prevent business travelers from taking advantage of excursion fares. The annual depreciation charge or cost of a particular aircraft in an airline's fleet depends on the depreciation period adopted and the residual value assumed. General and administrative costs are usually a relatively small element of an airline's total operating costs, because many administrative expenses can be related directly to a particular function or activity within the carrier, such as maintenance or sales. Southwest Airlines represents the extreme case of a low-fare pricer, strongly focused on obtaining and maintaining market share and on diverting traffic from auto, bus, and rail travel.
