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?

Answer 1

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.