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Strange impact of fixed costs

Fixed costs help explain why an airline recently sold tickets for £5.00. The key driver is that an airline has very high fixed costs. As the flight date approaches it may well have to incur all these costs to fly a near empty plane.

It therefore makes some sense to get any contribution from the consumer to offset some of the fixed costs or put another way, fixed costs dictate that a near empty plane will fly at a loss. Selling flights at the last minute helped reduces the losses.

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