Shrinking the market


Though I rarely travel during the holidays, people always talk about how Christmas Day and New Year’s Day have low passenger traffic and cheap flights. Well, I checked out some flights for a potential trip to Florida anytime from mid-December through early January, and everything on Southwest was at least $400 per ticket. That’s about twice what it would cost for the same flight outside the holiday period.

Absent any other data, I would have to assume this is the result of the airlines’ efforts to reduce capacity and more closely meet actual “demand”. But I wonder: at what point do fewer flights and higher prices end up shrinking the market size? How many people will stop flying entirely, or at least cut back their trips by a significant amount?

I don’t have the answer to these questions, but I think it’s interesting to look at the point where higher prices and lower supply don’t just bring supply in line with demand. Rather, this point might also mark the point of no return, beyond which you start making the entire market smaller in the long run.