I’m returning from Japan to New Zealand in a few months. I don’t think we’ll be back to Japan within 12 months, so I wanted to buy a one-way ticket. I knew it’s going to be more than half the price of a return ticket, but I expected it to be a little cheaper. So you can imagine my surprise when I found that a one-way direct ticket costs three times the price of a return ticket. I am not kidding. A return economy-class ticket costs about 100,000 yen and a one-way is 300,000.

I’m not complaining too much, because I think 100,000 yen (about 940 US dollars) is a reasonable price for a 12 hour flight on a good airline (and a very good price for return). But it’s still kind of puzzling. Obviously, with this pricing structure, no one will buy one-way tickets, as you can just buy the cheaper return ticket and cancel the return portion (with no refund of course). So why sell one-way tickets at all if they’re more expensive than return tickets? Are one-way travellers so costly or troublesome for the airline that they want to discourage them all together? What is going on here …?

To make it even more confusing, in the other direction, from New Zealand to Japan, you can buy a one-way ticket for about 25% less than a return ticket. However the price of one-way from New Zealand to Japan is higher than a return ticket originating in Japan. I’d be really interested to know the factors that are driving these price differences.

Here is a (slightly) interesting question about aviation economics: Why are passenger airplanes flown by airlines usually relatively new while freight airplanes may be very old? For example, the DC-8 is quite popular as an airborne freighter, but it first flew in 1958 and production ceased in 1972. So the youngest DC-8 currently in service is 35 years old. Apparently pilots call it the ‘Diesel 8′. In contrast, most airlines retire their airplanes after 20 years or so, although there are some exceptions. In general, newer airplanes are more fuel efficient and require less maintenance, so why don’t air freight operators want to use newer airplanes too?

One possible explanation is that it’s due to passenger preferences — people assume that old aircraft are unsafe and are therefore unwilling to fly on them, whereas freight doesn’t care. This is probably true, but there’s another side to the story which nicely illustrates the economic idea of opportunity cost. First you need to know that passenger airlines generally work their aircraft harder than freight airlines, that is, the average passenger aircraft flies more hours in a day than the average freighter. This is because freight airplanes are typically used to shift large quantities of time-sensitive freight quickly between centralised distribution centres during the night. I’ve heard that a freight plane may fly only 6-8 hours per 24 hours, while a passenger plane could do 12-14 hours.

When an airplane is sitting on the ground, it’s not making any money. It’s not burning any fuel and doesn’t need any pilots either, but it’s still costing its owner something in an economic sense. Airplanes are expensive, and the capital tied up in the airplane could have been put to an alternative use and invested in something else to make money. Thus, an airplane sitting idle has an opportunity cost, which is the return on the next best alternative that the money used to buy the airplane could have been invested in. This will be reflected in the interest that the airplane owner has to pay if it was bought with borrowed money, or the return that the company must pay to its shareholders (or both).

So an airplane sitting idle has an opportunity cost. Since freight operators leave their airplanes sitting on the ground for a greater amount of time, they have a stronger incentive to minimise this cost compared to passenger airlines. The way freight operators do this is to use older aircraft which are cheaper to purchase and therefore have lower opportunity costs during their idle time. This is partly offset by higher fuel and maintenance costs, but since new airplanes are so expensive, the savings in opportunity costs during idle time outweigh these higher operating costs, making it more economic for freight operators to use older aircraft.