I applied to work reunion this summer about a month ago, and ever since then every conversation with my mom the question of when I’m coming home has arisen. This is due, not only to the fact that my mom wants me home as soon as possible, but also because my mom is anxious to buy my plane ticket home and needs to know whether I’ll be staying an extra two weeks. There are many economic concepts that factor into this decision.
Firstly, this problem can be approached from the point of view of the airlines. My mom is anxious to purchase the ticket as soon as possible because tickets are cheaper the further in advanced they are bought. This is because far in advanced the demand for a plane ticket is fairly low, but as the date gets closer the demand increases as people decide what days they want to travel on, causing the equilibrium price to rise. Therefore the earlier you can buy a plane ticket the cheaper it will be.
Besides the changing explicit cost of the plane ticket, my mother and I also had to weigh the opportunity cost of buying a plane ticket sooner versus later. If I bought a plane ticket earlier, before hearing back about the job offer for reunion, I would be giving up the income I would have made during that week. The amount I will make during reunion is substantial enough that it was worth waiting a few extra weeks, even though the price of plane tickets probably rose in this time period (I did get the job).
Another consideration was whether or not I could have flown standby. If I had more flexibility in my schedule flying standby could have been a cheaper option. This is because for each trip airlines have a fairly high fixed cost and relatively low variable cost. The plane itself is a sunk cost, and regular maintenance to keep the plane safe is required regardless of the number of passengers. The cost of jet fuel depends more on the distance of the flight than total weight added by a few extra passengers and their luggage, and the same number of crew are on a flight whether it’s 80% or 100% full. Because of this it is beneficial for planes to fill as many seats as possible. Therefore on the day of the flight airlines will drop the price of a ticket because selling a cheaper ticket is better than having empty seats. The trade off for costumers is that even though tickets are cheaper, there is less certainty of the availability of tickets at this point.
You mention that your mother always tries to book plane tickets as early as possible as the demand is low, however, I do not particularly think this is wise. The Economist published an article (see-below) that mathematically shows that the price of airline tickets generally knows a minimum at around 8 weeks before the day of the flight. If a minimum exists, this means the price increases on both sides of this 8 week point. This is partially due to, as you say, people who buy their tickets at the last minute. I also think it is because of this “the earlier, the better” idea that a lot of passengers have, which makes the tickets more expensive when the date of purchase is more than 2 months before the flight. I also think it would be interesting to see if the price of tickets for the plane you were initially going to take rose or decreased, as well as see what the price is on the day of the flight, to be able to further discuss your observations and assumptions regarding the prices of airline tickets.
http://www.economist.com/blogs/gulliver/2010/08/when_buy_airline_tickets
I remember reading something similar to this in the textbook. The vacationers or people who are trying to buy their tickets early have a more elastic demand curve for the ticket thus the price they are given when buying it at an earlier date is lower than buying the ticket closer to the takeoff date. When it is closer to the takeoff date, the plane company assumes that these people are the businessmen that can afford to buy the ticket at a higher price. Inaddition their demand is more inelastic so plane companies know to increase prices.