Friday, August 15, 2008

When is “The Price” the Real Price?

I was on the Air Canada web site considering booking a flight when some “special offers” caught my eye. Apparently there is a flight to Las Vegas available for only $94. I wasn’t planning to go to Las Vegas, but I decided to click a few buttons while I daydreamed about a fun weekend.

After selecting some dates, I was dumped into a screen with the final price of $423.79. Apparently, the $94 was a one-way price. And a flurry of surcharges added another $235.79. I particularly liked the fuel surcharge. Is fuel optional?

The sad thing is that I was expecting worse. I doubt that very many readers are surprised at these numbers. How did we get to a place where we expect advertised prices to have nothing to do with the actual amount we have to pay?

I think it is a side effect of visible sales taxes. We’ve been conditioned from a young age that everything costs more than the advertised price. At first it was just a little bit more, but creative businesses have been pushing the envelope a little at a time until we have Air Canada showing me a final price more than four times the advertised price.

There are disadvantages of hidden sales taxes as well. It is common in Europe for prices to include any taxes. This makes it too easy for governments to raise sales taxes without too much fuss from voters. We’ve opted for the different evil of fantasy prices in advertising.

Maybe burger chains will start offering one-cent burgers with added fees for meat transportation, onion chopping, and hairnets. As long as they introduced these fees slowly enough, we’d probably just accept it.


  1. Good points. I never understood the fuel surcharge deal. Just raise the price for the flight. Maybe lower it someday if fuel drops.

    Very similar practices for buying a new car, or building a prefab home. The bare-bones price is always advertised. Who buys a car without air conditioning or a home without flooring...

  2. And as long as all the burger joints introduced it at about the same time!

  3. I agree entirely about the downsides of visible taxes -- the effects of conditioning people to expect to pay more than the advertised price have been grossly underestimated for a long time. Personally, I think that effect is worse than the government sneaking more taxes in, especially in Canada and in the internet age: if prices get too high, people will start buying things across the border, and Canadian retailers will complain loudly, so it's a self-correcting problem.

  4. MG: I agree that this practice is rampant through our economy. I chose to pick on Air Canada, but I could have chosen Bell, Rogers, car dealerships, or just about anyone else.

    Potato: The major players in many industries collude on prices to some extent. Could burger joints be next?

    Patrick: I remember Mulroney talking about the importance of the GST being a visible tax. At the time this seemed reasonable to me. But, looking at the state we are in now, I agree with you. I'd rather have all taxes included in advertised prices.

  5. "I have an amateur interest in money. My goal is to explain financial matters clearly for non-specialists."

    And you do it VERY well.