Posted by Anonymous on .
An airline has a low marginal cost per passenger of $30 on a route from Boston to Detroit. At the same time the typical fare charged is $300. The planes that fly the route are usually full, yet the airline claims that is loses money on the route, how is this possible?
1) While the marginal cost of adding a passenger may be small, a typical flight typically has huge fixed costs.
2) it may be that flights from Detroit have huge profit margins -- such that an airline is willing to take a loss on getting people to Detroit, knowing that it will more than make up the loss on any connecting flights.