Why Is Business Class Sometimes Cheaper Than Economy?

Airline pricing is a complicated art. Every so often, I get a message from a reader confused about how business class or first class on a particular flight is cheaper than economy. I ran into this myself for some tickets I was researching just now, so wanted to talk a bit more about what causes this…

Business class priced lower than economy…

I need to book a ticket from Madrid to Athens, and while comparing options, I noticed something interesting for an Iberia itinerary I was considering. For the date I needed to travel, business class was cheaper than economy on two flights I was considering.

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Admittedly fares are expensive across the board, but on one flight economy cost $575 while business class cost $471, and on another flight economy cost $480 while business class cost $373.

While I wouldn’t say this happens all the time, we see this more often than you’d think. To the average consumer this makes no sense, since anyone in their right mind would want to pay less to get more.

So, what causes this? The simple answer is that this is due to how complicated inventory and revenue management at airlines is. But let me give a more detailed answer…

What causes this odd flight pricing situation

To give a more detailed answer of what can cause business class to be cheaper than economy, it comes down to how airlines are on a never-ending quest to try to get as much revenue out of each passenger as possible.

Airlines do this by trying to segregate their customer base, based on consumer behavior. They do this by having dozens of fare classes, and often filing dozens of fares in a market. The system is so complicated that it sometimes creates situations where business class ends up being cheaper than economy. If you have a plane with 200 people on it, it’s entirely possible that every single passenger paid a different fare to be on that flight.

Typically there are two factors that determine how much you pay for your flight.

The first is what fares an airline has filed in the market you’re flying. For example, below is an ExpertFlyer screenshot of Iberia’s published economy fares between Madrid and Athens. These filed fares are specifically for those traveling between Madrid and Athens, so if someone is connecting, you’d look at the fares published in that market.

What determines the fare you get is how far in advance you’re booking, when you’re traveling, whether you’re traveling roundtrip or one-way, whether you meet a minimum stay requirement, etc. As you can see above, one-way economy fares range from $161 to $601, and that doesn’t even include all fares.

Meanwhile below are the business class fare classes published in the market, which range from $368 to $928 one-way.

The other thing that determines the fare you get is what booking classes the airline publishes for a particular flight (which you’ll see in the “Booking Class” column in the above charts). So not only does your itinerary have to be eligible for one of the above fares, but then the individual booking class codes need to be available for that type of fare, which will determine how much you pay.

The codes an airline makes available on a flight constantly changes, and is based on the expected demand for the flight. Obviously airlines want to sell the highest fares possible, while ideally not leaving many seats empty.

So there are a lot of factors that go into what fares an airline publishes, and also what fare classes an airline makes available on a particular flight.

To sum it up more succinctly, what’s going on with the above flights is that there’s obviously a lot of demand for economy, but not so much demand for business class. For example, on one of the flights above, economy doesn’t have many seats left, while I don’t see a single seat assigned in business class.

So on that flight, the airline is basically making one of the cheapest business class fares available on that flight (due to lack of business class demand), while only making among the more expensive economy fares available (due to lack of economy availability).

Is that entirely rational? I guess it depends on how you look at it. No, it probably isn’t. However, airline inventory management is complex enough, and that’s why situations like this will happen once in a while. For example, I only saw the above situation (where business class was cheaper than economy) on a single day for the month I was looking at traveling, which suggests that demand was just a bit different than normal that day.

Furthermore, I suppose one could argue that there is sometimes merit to this, when you consider that some corporate travel policies require flying economy, and not business class. So in those situations, the airline could potentially extract more revenue while offering a lesser product.

Bottom line

It’s not unheard of to find that first class or business class fares are cheaper than economy. While that may seem counterintuitive, this reflects how complicated airline fares are. Airlines are trying to do everything they can to maximize each consumer’s willingness to pay, and at times that leads to oddities like this.

Don’t expect to see premium cabins cheaper than economy frequently, but if you do see it, it’s (probably) not a glitch.

Have you ever seen a premium fare cheaper than an economy fare?