Empty leg economics

dgnyc said:
Hello and a question for charter operators.

I came across an empty leg between TEB and Boca going for an estimated $17,000 in a G-450.

What is the rationale behind charging more than the marginal cost of food and fuel for an empty leg flight?

Let’s assume that $17K is the all-in cost of ferrying the plane back to TEB. Since that’s the baseline cost whether the plane is empty or carrying a few people, why wouldn’t the charter operator price it at say, $5,000 instead of $17,000?

17K-5K+2K (2K est. food and gas for 5 people) = $14K cost and +$3,000 to the bottom line.

Is the likelihood of getting a customer not dependent on the price?

What am I missing here?
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I can think of several reasons:

1. You show up to the airport and a few minutes before the flight, the pilot's cell phone rings and the dispatcher has a full fare charter for the aircraft from the airport next door.

2. You are onboard, after take-off and the crew gets notified of a full fare charter nearby.

3. The plane has a mechanical issue enroute, lands at a small airport. What are they supposed to do for you?

4. Full fare customers hear about the deal you got for 1/3 the price. The full fare customers decide to just wait around for another deadhead instead of chartering at full fare.

5. The Charter customer charges the customer a round trip fare even though he only rides one way and the plane deadheads home. The customer would get pretty upset if he found out you took advantage of the flight he paid full round trip fare for. He may demand one way pricing from then on.

6. Your kids trash out the plane, spilling soda and cheese dip all over the carpet.

7. You complain about the service, the ride, the pilot, the aircraft, online or to the FAA.

In short it probably is just not worth the hassle for most operators unless they know you very well or the original customer is OK with the situation.
 
TigerGene said:
I can think of several reasons:

1. You show up to the airport and a few minutes before the flight, the pilot's cell phone rings and the dispatcher has a full fare charter for the aircraft from the airport next door.

2. You are onboard, after take-off and the crew gets notified of a full fare charter nearby.

3. The plane has a mechanical issue enroute, lands at a small airport. What are they supposed to do for you?

4. Full fare customers hear about the deal you got for 1/3 the price. The full fare customers decide to just wait around for another deadhead instead of chartering at full fare.

5. The Charter customer charges the customer a round trip fare even though he only rides one way and the plane deadheads home. The customer would get pretty upset if he found out you took advantage of the flight he paid full round trip fare for. He may demand one way pricing from then on.

6. Your kids trash out the plane, spilling soda and cheese dip all over the carpet.

7. You complain about the service, the ride, the pilot, the aircraft, online or to the FAA.

In short it probably is just not worth the hassle for most operators unless they know you very well or the original customer is OK with the situation.
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I think it's safe to say that the operator had nearly none of those thoughts in mind when planning this flight. It all boils down to logistics.
 
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Indeed none of those thoughts at the time of booking. But they may have policies in place concerning the selling of deadhead flights and some of those policies may be based on some of the reasons given above.
 
TigerGene said:
Indeed none of those thoughts at the time of booking. But they may have policies in place concerning the selling of deadhead flights and some of those policies may be based on some of the reasons given above.
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Exactly.

And the fact of the matter is that it really doesn't matter why. It's none of our business why somebody chooses to run THEIR business the way they do. We either do business with them on their terms, negotiate something different, or don't do business with them.
 
TigerGene said:
I can think of several reasons:

1. You show up to the airport and a few minutes before the flight, the pilot's cell phone rings and the dispatcher has a full fare charter for the aircraft from the airport next door.

2. You are onboard, after take-off and the crew gets notified of a full fare charter nearby.

3. The plane has a mechanical issue enroute, lands at a small airport. What are they supposed to do for you?

4. Full fare customers hear about the deal you got for 1/3 the price. The full fare customers decide to just wait around for another deadhead instead of chartering at full fare.

5. The Charter customer charges the customer a round trip fare even though he only rides one way and the plane deadheads home. The customer would get pretty upset if he found out you took advantage of the flight he paid full round trip fare for. He may demand one way pricing from then on.

6. Your kids trash out the plane, spilling soda and cheese dip all over the carpet.

7. You complain about the service, the ride, the pilot, the aircraft, online or to the FAA.

In short it probably is just not worth the hassle for most operators unless they know you very well or the original customer is OK with the situation.
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All of these (great answer TigerGene!) but especially #4. Heavily discounting a perishable product to meet/beat your marginal economics devalues your full price offering. Not necessarily immediately and not directly or to all of your customers but it has unintended consequences on your full price product. Just as high end restaurants don't start discounting the evening's entree special as closing time approaches (despite it likely being a good idea in the near term), charter operators don't want to create a sliding scale market where certain customers will be incentivized to start trading flexibility for discounts. Worse yet, an intermediary can jump in and create a market by pooling dead head legs across many operators and skim an uber like margin on big $$$ while messing with the individual operators' business. That all said, dead head leg deep discounting is happening, I'm sure, it just has to be done somewhat quietly vs. out in the open for all to see.

BTW - there is an interesting parallel in international drug pricing that is a sore subject for anyone who works for a pharma company and is forced by other governments to effectively do this.
 
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TigerGene said:
Indeed none of those thoughts at the time of booking. But they may have policies in place concerning the selling of deadhead flights and some of those policies may be based on some of the reasons given above.
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Right on! I believe they would fall into the policy category as you mentioned rather than scheduling stipulations.

:)
 
Thanks to everyone who weighed in on my OP. It's interesting that RudyP noted the pooling marketplace as I was thinking that the operators should sell empty legs by the seat instead of the plane (the marginal cost logic I started with). Of course, that could lead to a race to the bottom like the airline model. Thanks all!
 
Shawn said:
All of it...Ok, MOST of it for Captain Literal...for whatever reason you seem to be more interested in being an argumentative twit to other's thoughts both this thread and other posts rather than offering insight and experience to the topic at hand which is detriment to both this board and the aviation community. Sorry, that is my perspective anyway.
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Ask him about his Mooney.
 
gsengle said:
You're missing his question entirely. It's an empty leg. Sunk cost. It's going. Operator is trying to get some $$$ for it. It's going from point a to point b no negotiation. It seems that the odds of filling it full price are remote. Isn't it better to fill it at a lower price if possible than let it stay empty?


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EVERYTHING IS NEGOTIABLE... Make an offer. You never know, they might just take it, especially if there is no added cost.
 
gsengle said:
That's not the answer. That sounds like full price. The question is do they really think they can get full price, especially since discounted empty legs are actually normal. Then again maybe the full price is higher. Want more than a glib they know what they are doing answer...
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Since we're not the ones that made the decision, we can't answer the question "Why did they price it at $17,000?". Maybe 17k is full-fare, maybe it's a discount, maybe 17 just happens to be the CEO's favorite number.

Since it could be anything, all we can do is address the question "Why would they price it at $17,000?"

The most simple answer is "because they can." It was well summarized by Ryanb, so I'll quote it once again:

Ryanb said:
Supply and demand. If they can get $17,000 for the leg, than why would they price it for $5,000?
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It's not glib; it's just simple. Reference Occam's razor.
 
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