'All you can fly' tickets will crash and burn

The New Zealand Herald reported last month:

A New Zealand airline is releasing $799 all-you-can-fly tickets, giving purchasers three months to travel as often as they like with the airline.

Regional carrier Sounds Air has 1000 tickets available and flies to nine destinations from Blenheim, Christchurch, Nelson, Paraparaumu, Picton, Taupō, Wānaka, Wellington and Westport.

Sounds Air general manager Andrew Crawford said the country was past Omicron and Covid-19, and while people wanted to get "out there" again, they had been slow coming back to air travel.

This could go really wrong for Sounds Air. The reason is moral hazard, which I covered with my ECONS102 class this week. Moral hazard arises when one of the parties to an agreement has an incentive, after the agreement is made, to act differently than they would have acted without the agreement. In this case, the agreement is between Sounds Air and the customers who buy the 'all-you-can-fly' tickets.

After the ticket is purchased, the marginal cost of flying decreases to zero for the ticket-holder. When the cost of something (like flying) decreases, we tend to do more of it than we would otherwise. The ticket-holders will fly more. Sounds Air might argue that that was their intention. From the article:

"We've got spare capacity, let's get people buying a season pass and try to get them on flights that are not full anyway.

Clearly, Sounds Air wants people to fly more. However, the important question is how much more will people fly? The monetary cost of each additional flight is now zero for the 'all-you-can-fly' ticket holders, so unless there is some fine print in the ticket, I'd expect some of them to fly a whole lot more. And probably they will fly far more than Sounds Air is expecting. What will Sounds Air do if their season ticket-holders start to take up all the seats on their flights? How sustainable is a business going to be that gives away its product for free? I predict that this experiment will crash and burn, and after this initial run, we won't hear of it again, just like the Minnesota pub that offered free beer for life.