Air Fares 101 – Why do fares change all the time?

http://www.cheapair.com/blog/travel-tips/air-fares-101-why-do-fares-change-all-the-time/

by ZeljkoS • 12 years ago

161 186 12 years ago

coldcode3• 12 years ago

Good overview. Having worked at a GDS subsidiary and written about this topic, another thing to add is it depends on how many caches there are between you and the root database. Airfares are heavily cached so the data that is shown in search results is often stale; only the final booking (when you actually pay) is the real number. The more contention for seats as you get to the last few the more likely the final price can jump. For example, Google's flight data is very stale since they don't do any booking, they don't really have to update all that frequently, which means they can return results from their own cache fast.

giarc2• 12 years ago

Great explanation, however why do I never see "Your fare has increased $55" on sites like Expedia but sites like CheapAir.com have it all the time. I expect Expedia and CheapAir.com have the same source of data therefore it does seem like a bait and switch situation.

coldcode3• 12 years ago

Expedia may decide to eat the difference (it can go up and down) and other folks may not be able to afford this (remember that airlines only give like $10 per ticket, not much margin).

michaelochurch6• 12 years ago

"We did that Uber shit before it was cool." -- The airlines.

Another thing that surprises most people is how expensive business and first class are, relative to coach. After all, if you're only getting 1.5-2x as much space, it doesn't seem fair that you'd have to pay 10x prices. The truth is that many of those seats are filled via upgrades to frequent fliers and more fairly priced in that view. But someone who asks for an assured first-class seat (which is where the 5-10x premium is charged) is identifying himself as a captive buyer. About half of the first-class seats are upgrades (especially to make room, because airlines often overbook) given that day, and those are cheap or free, but the other half are a mix of business travelers under time pressure, invited conference speakers whose flights are booked by a third-party, and people with disabilities. While people complain about the "assholes" in first class getting marginally better treatment, a surprising percentage of the people up there aren't rich at all, but have disabilities (e.g. back and knee problems) and can't fly coach, and those people fly once a year (!!) at most, because they can barely afford it. Perversely, the disabled guy of modest means is going to see a higher fare for a first-class seat than a business traveler on a corporate rate.

Oddly enough, air travel is getting to the point where airlines are intentionally making coach travel worse to make up for a decline of first- and business-class passengers since 2008. While one might think that the purpose of the checked bag fees is to make a little extra money (and that's part of it) there's a much larger gain in filling up the overhead bins (thanks to those horrid checked-bag fees, overhead bins always fill up early) and then selling early boarding for $50 per ticket. Waiting spaces at many terminals have been deliberately neglected for acoustics and outlets, to push people into buying first-class tickets just to have access to the lounges. Natural demand for first class seats hasn't recovered since 2007 and, even with the economy back, it won't, so air travel is now an experience where unpleasantness is deliberately induced.

johnlabaptise• 12 years ago

"if you're only getting 1.5-2x as much space, it doesn't seem fair that you'd have to pay 10x prices"

Business aren't obligated to offer you prices that you think are fair. I don't understand why people think they are. When people say something is a rip-off or unfairly priced what they really mean is that they aren't willing to pay that price for the product.

What a business chooses to charge you is entirely up to them, and they can be as rational or irrational in your eyes as they like.

michaelochurch6• 12 years ago

I don't think that it's dynamic pricing that makes people hate the airlines. It's the rash of bad-faith activity around the dynamic pricing.

For example, decreasing legroom and forcing disabled people into business class tickets they wouldn't have needed, were it 20 years ago when coach seats had enough room, is bad-faith activity. Likewise, this "boarding group" nonsense where "Group 5" means you'll have no overhead space and have to wait at a fucking baggage claim, despite carrying your bags to the terminal, is bad-faith activity. So is (in Asia) denying airport lounge access to coach passengers instead of pricing it a la carte as is done in the US, and so is the non-transferability of tickets (which is disingenuously argued to be because of 9/11, but really is just there to steal from people).

There's a ton that airlines do that is dishonest, in bad faith, and generally engineered to make for an unpleasant experience in coach, just to make up for the continuing decline in demand for first-class travel due to (a) teleconferencing in business, and (b) better medications for sleep and relaxation (e.g. modern benzodiazepines).

If you want to charge some narcissistic business executive 10x for 50% more room, go ahead. But that's not what we're talking about.

phantom7842• 12 years ago

People buy first class tickets just for the lounges? Usually, you can just pay $30 or so for a day pass to a lounge.

chrisseaton2• 12 years ago

$30 for a day pass to a first class lounge? I can't believe that at all. Can you show me which airports and lounges offer that because I'm going to take them up on it.

michaelochurch6• 12 years ago

In the US, you can. In less enlightened countries, that's not the case. Of course, for a 2-hour domestic flight, the lounge is just a perk rather than a necessity.

ubernostrum2• 12 years ago

There's a difference between the regular lounge anyone can buy day passes/memberships to, and the premium-class lounges for international flights. Access to the former does not get you access to the latter; typically, only an actual premium-class international ticket for that day, or possessing top-tier frequent-flier status in the airline or alliance, gets you into those.

monksy4• 12 years ago

Lounge tickets are valued at about $25, because thats where the market puts them at. The lounges charge $50 or better at the door.

yummyfajitas• 12 years ago

"Uber shit" is having a single transparent price that fluctuates with market forces. That's not remotely what airlines do.

michaelochurch6• 12 years ago

Airlines (Soviet service and morale, capitalistic price fluctuation) are a perfect microcosm of corporate capitalism, which exists to give the worst of both systems (that is, capitalism and socialism) to the masses and the best of both (social safety net/impunity of socialism, extreme upside of capitalism) to a well-connected elite (often called "the 1%", but closer to 0.1%).

lizzard• 12 years ago

Disabled people do not have to buy first class tickets. I am disabled, and often am seated in the very back of the airplane. There is a narrow aisle chair (a very skinny wheelchair) to help people get into the plane and through a plane's aisles. Airline agents at the gate often nicely switch my seats closer to the front of the plane, but not to first class. You are claiming some things that absolutely aren't true, here.

leoedin• 12 years ago

I don't think the comment author claimed that disabled people have to travel first class, but that some people with disabilities choose to travel business or first class because travelling in economy is too painful / not practical.

raverbashing• 12 years ago

Sometimes you can get a business class by a nice price (something like 1.5x a regular ticket), it depends

And it's not only about the space, it's the service + luggage allowance + flexibility

jdmichal2• 12 years ago

I've had a first-class upgrade be only $15 more than the checked bag fee. One should always check the price and compare it to the fees they are expecting to pay anyway.

robotresearcher• 12 years ago

and using the short lines at the airport, and the lounge.

mcot2• 12 years ago

Jet Blue mint is $599 from jfk to sfo or lax. I commend them for only pricing the premium experience at 2-3x.

jusben13693• 12 years ago

I wonder if we're confusing cause and effect here. Are half of those first class seats upgrades because they couldn't be sold? Or are they priced at such an exorbitant price and manipulated to ensure half remain free to reward high revenue frequent fliers? You seem to be implying the latter.

saganus• 12 years ago

This sounds like this would be fertile grounds for an airline to be disruptive.

Imagine what would happen if there was an airline that could set fixed prices for, let's say, the next 2 or 4 weeks. So you can search for a ticket price on the 1st of a month and it would be the same as on the last day of the month.

I know that this is probably not realistic since you can't just open up an airline like you can a startup, but it would be interesting if it was possible and see who gets a bigger revenue/piece of the pie: the airlines with the uber-sophisticated yield management systems, or the one that treats customers as people and not factors in an equation.

It's probably very difficult to even do the mental experiment, but I sure would be glad to see these kind of companies show up. I know there are already lots of companies that treat customers as their most valued asset instead of just a cash-cow, and almost in all cases that I can think of, these companies are doing great precisely because there's more and more people that want to be treated like people, and are willing to pay extra for that, instead of getting the lowest price and be kicked in the behind in the process.

eru5• 12 years ago

It's actually pretty easy to open an airline, all things considered. You don't need that much capital, since you can lease the planes. And you get your fare revenue before you render the service---ie an inherently cash flow positive business.

rspeer• 12 years ago

I was hoping for something that explained the part where they get you to pay a higher fare by tracking you on the Web. But maybe an insider site like this wouldn't be willing to talk about that.

There are many sites that describe this happening, such as [1]. And I've seen it happen to me: a fare would go up by $50 while I was searching, and opening a private browsing window would make it go back down.

[1] http://www.halfwayanywhere.com/budget-travel/your-guide-to-c...

tiku• 12 years ago

The all inclusive branch also does this, you search a nice holiday, get hyped, tell your family or mates, and when you get back a day later it's suddenly 200 euro's more..

useful• 12 years ago

I've only worked a little with the inventory back end so you can take what I say with a grain of salt. Different points of sale can have different yields and report different available seats in each class of service. So the price for a travel agent or a partner airline can be different. If a website detects you are searching for a holiday flight, and are back, they could switch the point of sale that they give you quotes from.

manacit• 12 years ago

I don't mean to sound standoffish, but as far as I know this isn't true.

I have yet to see real proof that airline companies get you to pay a higher fare by tracking your searches/browsing. While I'm sure you saw a $50 difference, it was likely a slightly different search, which is almost always what happens when people claim they've noticed this.

About a year ago, someone on reddit went out and offered a year of reddit gold for anyone that could, there was nobody: https://www.reddit.com/r/LifeProTips/comments/1ekv6e/lpt_bou...

As recently as last week, someone claimed they had reproduced, but they used slightly different search params and ended up with something totally different: http://www.reddit.com/r/travel/comments/2okml5/for_anyone_pl...

This myth is rife with anecdotal proof, but I've yet to see anything concrete.

nhaehnle2• 12 years ago

Obviously this is just one more anecdote, but this exact same thing happened to me on the Iberia website about two years ago, while looking for flights from Europe to South America.

I kept track of my searches in a spreadsheet, so I know for a fact that the price went up slightly (I think it was by 20€), and went back down immediately when I switched to a different browser.

Again, this was unfortunately too long ago for me to have reasonable proof, and it hasn't happened since (perhaps because I now tend to avoid Iberia anyway; they're pretty crappy in other ways as well).

xaro• 12 years ago

I experienced this just the other day. My father was looking at a price in his computer that I couldn't get (I was getting one that was $500 extra). I erased the cookies of the AA site, refreshed (exactly the same flights, the same days, everything the same) and bam! $500 dollars cheaper.

xrjn• 12 years ago

A couple of weeks ago I were searching for a flight on Easyjet with a friend, and every time we searched for the flight, we got a different price. We tried from incognito, tor and from a phone. Most of the differences were in the cents or at most a few euro, for a 45€ flight.

dasil003• 12 years ago

Your threshold for proof is too high. We're not talking about physics here, these aren't immutable laws to be scientifically investigated, these are systems designed by humans. The wise thing to do is assume they will do anything to screw you until proven otherwise, not the other way around.

Personally I don't search airline tickets outside of incognito , and preferably not without VPN or tor protection as well.

dalore• 12 years ago

This study seems to corroborate https://www.petsymposium.org/2014/papers/Vissers.pdf

That price fluctuations are more due to activity than user profiling.

lfuller• 12 years ago

I know Air Canada does this pretty blatantly. When searching for flights they constantly go up by $50 - $100 an hour then magically reset to the original price when I open up an incognito browser window.

pacofvf• 12 years ago

1. search a flight.

2. search it again.

3. the price has surged.

they don't track individual users, they track the search queries, this makes me wonder if flight search services are just rising the entire market prices, instead of a user only searching once, they constantly search the same query.

eru5• 12 years ago

[...] this makes me wonder if flight search services are just rising the entire market prices, [...]

Not in general. The airlines account for that. (Otherwise, if the market could bear a higher price and still get reasonable demand, the airlines would have raised prices to that level in the first place.)

igrekel• 12 years ago

Maybe to point out that the number of seats in a fare bucket doesn't need to change at any second for the displayed fare to change. For most airlines, the fare buckets are not independent and bookings in one bucket may decrease availability from other buckets. These formulas make it unnecessary to change the number of seats allocated to each bucket all the time. Most changes you see during the day are just the result of new bookings and cancellations that are coming in live.

The volume of pre departure cancellations can be crazy for some routes to a point people wouldn't even believe.

DanielBMarkham• 12 years ago

In the states, the more I deal with cellular companies and airlines, the more I hate them.

It's not just me: it's a common opinion. One prominent business magazine had a cover a few years back titled something like "The companies we all hate"

Consumers like to purchase things in atomic units and simple terms. If I go to the grocery store, there's a bushel of apples. The sign says "Granny Smith apples: $1"

I can confidently pick up an apple, walk to the register, and expect to pay a dollar. The grocery store can advertise their wares and prices in the paper or online and I can plan on going to the store and making the same exchange. People like being able to predict how much of one thing they have to trade for an amount of something else. When lots of competitors do this in a market that anybody can participate in, it's good for everybody.

But when I buy an airline ticket? The rules are many times so byzantine that entire cottage industries have sprung up in an effort to capitalize on them. How much does it cost to fly coast-to-coast? Beats the heck out of me. There is no answer. Could I pick up a job where I had to fly ten times from point A to point B with a few day's notice and be able to include travel costs in the price? No, not unless I were to charge up to 17 times the cheapest rate.

Complex pricing systems may be great for the airline, but they're damaging to the free and open market. Instead of using rapidly-changing yield management systems, we'd all be better off if they just used an cross-carrier auction with transferable tickets. Let downstream providers handle liquidity.

I doubt this will happen, and instead there will be more penny-pinching, crazy rates, and unhappy customers.

markdown2• 12 years ago

This doesn't take away from your point at all, but I just wanted to point out that:

I can confidently pick up an apple, walk to the register, and expect to pay a dollar.

This is true in most of the world, but not in the US, where you don't know what you're paying until you reach the checkout counter.

thaumasiotes3• 12 years ago

Well, you can weigh the apple yourself on the scales that occur all throughout the produce section... but yeah, I'd be surprised to see a flat rate for fruit by species no matter the size.

Fruit is sold by weight, not count, in China too.

dllthomas5• 12 years ago

That varies from store to store. I know the fruit stand off Hwy 1 near Moss Landing usually has 7 (small) artichokes for a dollar and similar.

brandonmenc2• 12 years ago

If the airlines adopted a simple, predictable pricing scheme, you likely wouldn't be able to afford it.

tchvil• 12 years ago

cheapair.com could keep the various fares for a flight and show you their progression

jexe• 12 years ago

So has anyone built a site that lets you put limit orders on airline seats yet? I'd love to, say, have something automatically book a $250 flight across the country if the price happens to cross that threshold in the next week.

giarc2• 12 years ago

yapta.com doesn't allow booking but it does allow you to set alerts on specific flights.

rbcgerard• 12 years ago

I think that's a pretty good idea -

two quick thoughts:

1.as a consumer its hard to do more than "technical analysis" on a chart of the ticket price to figure out where to set your limit order

2. What are the odds that the company doing this doesn't share their order book with the airlines?

still like the idea

eru5• 12 years ago

1.as a consumer its hard to do more than "technical analysis" on a chart of the ticket price to figure out where to set your limit order

You don't do any analysis on the price. You just introspect, and figure out what is cheap enough to make you get up and fly, and that's the price you set.

jgroszko• 12 years ago

Kayak.com allows you to set email alerts for this

geverett5• 12 years ago

We've been considering doing that at hitlistapp.com. For now, we just send you alerts when we find deals that we've determined are good (or great or spectacular), based on a proprietary algorithm for determining good deals that takes into account time to booking, price fluctuations throughout the year, and how desirable the destination is for you.

We're different from Kayak or Yapta alerts in that you don't have to set alerts for a specific destination/time - you can search for things for, say, '7-10 day trips to South America between January 4th and 30th' or 'a long weekend in Austin in the next quarter'.

prostoalex2• 12 years ago

Priceline.

Someone12348• 12 years ago

One additional note: While airfares do get progressively more expensive (on average) as you get closer to your flight, if you book too far out you will actually pay MORE. A lot of discount fares don't open until around six months before a flight (approximately), sometimes less. So if you book too far in advanced you'll pay close to a "full fare" (or at least miss out on some of the better discount classes). This, I suspect, is because the airline hasn't yet calculated how many discount classes they'll be opening up, so they just give you a "default"/safe price that they likely won't regret.

Just something to keep in mind from someone who often plans travel 6+ months in advanced. Booking flights 3-4 months in advance is fairly safe, longer or shorter and you might suffer for it.

zrail• 12 years ago

Southwest, as far as I can tell, doesn't change rates once they've published. Three rate tiers, optional early check-in to get a better boarding order position, and free baggage.

The most striking difference is that, in general, the flight attendants are happy. They smile. They joke around. Sometimes they sing songs. I was on a flight a few months ago where the entire plane played a game because it was someone's birthday.

If Southwest flies anywhere close to where I'm going, I make a point to fly with them. Even if they're slightly more expensive, the drastically less toxic experience makes up for it.

Someone12348• 12 years ago

I too very much enjoy Southwest. Seems like people either love them or hate them (mostly because a lot of people want assured seat locations rather than the "bus model" Southwest utilises).

earlz• 12 years ago

I'm not 100% sure it is "legal", but I had the pleasure of flying on southwest with them half-singing half-joking throughout the mandatory safety stuff.. it was a pretty hilarious change of pace. Unfortunately, Southwest, though fairly cheap for where I go, has 2 stops minimum no matter what where as everywhere else can make it 1 stop

Fuzzwah• 12 years ago

Had a similar experience on Southwest when flying from Phoenix to Vegas.

I initially cringed as the attendant started talking on the the mic and making a joke, as any world weary traveler probably would. I soon found myself laughing as the rest of the crew joined in with mimes and singing and call backs. It was definitely one of the best flight experiences I've ever had.

dllthomas5• 12 years ago

"half-singing half-joking throughout the mandatory safety stuff."

I've taken to exclaiming "Oooh!" when they show us how to buckle our seat belts.

jcfiala• 12 years ago

As a parent, I fly Southwest so that I can take advantage of the two free checked-in bags you get per ticket. Not having to wrestle several overfull bags of clothes on and off of the plane makes Southwest a great bargain for my piece of mind.

monksy4• 12 years ago

If each kid has a ticket, you can check a bag under their name. Why do you need 2 bags?

vitriolix• 12 years ago

That and the fact that they do family preboarding which really makes everyone happier (no screaming crazy kids in the lobby) and probably increases boarding throughput (no backup while moms wrestle carseats into window seats)

ethomson• 12 years ago

You should never have to pay for checked bags: just gate check the bags instead.

This new checked bag pricing has made the (already crowded) overhead compartments even more crowded. If your flight is full, or nearly so, there will not be enough overhead space for the carry-ons and the flight attendants and gate agents will start gate checking bags. Even if there is space, it may be toward the back of the plane, possibly behind one's seat.

This can be a big inconvenience for people who want to carry-on. If your carry-on is several rows behind you, you have to wait for the entire cabin to deplane before you can go back and get your bags. If you're on a tight layover, this can be seriously problematic.

As a result of this madness, the gate agents are always making announcements that they would like to gate check your bags (for free, of course).

trjordan• 12 years ago

They definitely change prices based on time. I've seen hikes around the 21 / 14 / 7-day marks from a flight, as well as longer-term changes for flights around Thanksgiving and Christmas.

saosebastiao2• 12 years ago

Additionally, they have the best leg room of any economy class that I've ever experienced.

drblast• 12 years ago

SW is great for all the reasons mentioned, but Jet Blue's leg room is amazing.

I'll only fly either of those two airlines if I have a choice.

Throwaway12242• 12 years ago

This is incorrect. WNCO has a big revenue management department, meaning they change pricing based on supply and demand. I believe they use PROS, but I can't recall 100%.

unfamiliar• 12 years ago

Corollary: this implies that booking flights which are the cheapest/most inconvenient will likely end you up in a less populated plane. Double win!

This is another reason to be wary of ubiquitous tracking for marketing purposes. Say I want to fly from Kent to New York via London. I book my expensive transatlantic flight and once that is secured, book my domestic flight.

But if Big Data is watching my actions, what is to stop the airline hiking the price of the domestic flight as soon as they see me booking the transatlantic flight? At that point I am committed and will be forced to pay much more than I had planned for the domestic flight.

blackRust• 12 years ago

But if Big Data is watching my actions...

Switch the order in which you book the flights. Since we assume separate bookings and sequential booking order this puts lower risk into your first purchase, and also Big Data then has all transatlantic flights from London to choose from to hike your price.

Istof• 12 years ago

or use 2 browsers to load the 2 prices at the same time

alexivanovs2• 12 years ago

This is a great piece, definitely, but the question I have, do you - Americans - consider $500 a fair/reasonable amount of money to pay for a plane ticket? (I even had to lookup the average salary in the USA)

I'm from Europe myself, and it usually costs us anywhere from $40 to $150 to travel anywhere in Europe, though the prices do go up if you want to go to a place such as China, Thailand, or even India. But then again, that's Asia!

ovulator• 12 years ago

The US is much more spread out than Europe, much more. A flight between the major cities in Europe, say London to Paris will be maybe $100 one way. A similar trip (distance wise) in the US from New York to Boston would also be $100 one way. A lot of people in the US fly much further than that. A trip from New York to Phoenix Arizona (not even all the way across the country) is a similar distance to Lisbon to Helsinki and will probably cost about $400 for a round trip flight in the US, there and back again.

selectout• 12 years ago

From my own experience (from MidWest, live in SF now), $500 is pretty average for a cross country. I can get most places I want to go (any major US City not completely across country) for about $150-$300 though and these are all round trips. It's just when I go from SF <-> NYC/Boston/DC that I get the $500-$700 range. Or if I just book at horrible times or over holidays.

potatolicious• 12 years ago

$500 is pretty normal for cross-country flying. Keep in mind that the USA is gigantic - JFK-LAX is approximately the same distance as Frankfurt to Tehran.

Prices are much lower for closer distances - it's not at all unusual to be able pick up ~$150 round trips for shorter routes.

mikeash10• 12 years ago

What's "a plane ticket"?

I live near Washington, DC. If I fly to, say, New York, then $500 would be outrageous. I'd expect to pay $100-200 roundtrip for that, depending. It's about an hour's flight.

If I fly to Miami, I'd expect to pay $200-300. That's about two hours.

If I fly to San Francisco, then $500 becomes a reasonable price. That's a six hour flight.

It makes no sense to talk about "a plane ticket" in isolation. From where to where? How far?

alexivanovs2• 12 years ago

You're right.

brandonmenc2• 12 years ago

I fly across the country every few months (live in Arizona, family in Pennsylvania) and I usually pay around $450, round trip.

I could pay less, but I stick with US Airways so I can rack up miles. When I made less money I'd fly whatever airline was cheapest - just under $400 was common.

I've done it all: bus, train, and drove myself. Flying is the best deal, hands down. There's no comparison - round-trip cross-country for $500 is a modern miracle.

geverett5• 12 years ago

I've always thought it was ridiculous that people would go to a site like Expedia or Kayak, type in a date and destination, and just hope that they get the cheapest fare. As this article explains so well, prices are fluctuating constantly and the chances that you'll be lucky enough to be searching for the flight at the optimal time are close to nil.

Most flight search engines now let you set up alerts to track prices, but I also think those aren't ideal because if you're flexible about where or when you might travel you'd have to set up thousands of alerts. (example: I'd like to go somewhere warm for a weekend in January from New York. There are 113 warm weather destinations within 4 hours of New York; I can leave on Friday or Saturday and return on Sunday or Monday; there are four weekends in January = 1808 alerts to set!).

This is exactly why we built Hitlist (hitlistapp.com, available for iOS and Android), an app which monitors airfares across swathes of destinations and dates and sends you notifications when there are ridiculous fares. Some of you might find it useful!

solutionyogi• 12 years ago

This is a great idea.

Two questions:

1. Why is it an App and not a website? 2. As you noted in your other comment, it would be best if you can have my credit card on file and buy tickets on my behalf automatically.

geverett5• 12 years ago

1. We want to be both (and have a website coming soon!) but started with app because it's so important to get these notifications on the go and ideally be able to book immediately. and 2. we're working on it! You can keep track of where we are if you have any interest by subscribing at blog.hitlistapp.com.

Bahamut• 12 years ago

I like going to airline price search sites for the simplicity - camping various sites for cheaper prices takes time and effort.

phantom7842• 12 years ago

Just installed it. Is there a way to set multiple home airports? There's a bunch of airports near me that I'd drive to if a good flight were available.

geverett5• 12 years ago

There is in v2.3, which is the latest on iOS (Settings>Home Airport>select up to 10 nearby airports). We haven't gotten that far on Android yet but should have it in January.

mb_72• 12 years ago

Installed it - it crashes each and every time I search for a destination, find the destination, then tap on the selected destination name.

geverett5• 12 years ago

Are you on iOS or Android?

saosebastiao2• 12 years ago

There is a big problem with trying to game the system with the airlines: The pricing is done using control theory. In fact, they have the most mature application of control theory to pricing out there, probably by virtue of being to first to apply it in that way.

Practically, that means that you can only game the system if nobody else knows how. If you are the only one that knows how, the algorithms probably can't detect and compensate for the error. As soon as news breaks out, the algorithm starts compensating. We saw this about 10 years ago when there were a few companies that started promoting the ability to search for Y-class fares...it was all but a year or so before the pricing stabilized. The same problem is currently happening for the hidden-city ticketing trick [1](the algorithms are compensating, although the airlines put in some manual systems when it first broke news).

The same goes for these ideas of "the best time to buy". Not only is historical data not good enough, but the more well known the data becomes, the worse the predictions become. This has already happened to some degree with the "buy as early as possible" crowd. Now it is more expensive to buy early than it is to buy late...something that wasn't previously true.

The lesson? If you figure out a way to game the system, don't tell anyone else.

[1] http://www.wsj.com/articles/SB100014241278873235398045782597...

gghh• 12 years ago

The article mentions "yield management" as the analytical background behind airfares http://en.wikipedia.org/wiki/Yield_management

Do you know of any referential book/article/blog to learn this kind of things?

naraghi• 12 years ago

I'm really interested in how these ways to game the system spread throughout a given market. I've referred to it as the "psychology of markets" and heard it called "behavioral economics." Could you recommend any other sources to read more?

mattsh• 12 years ago

Or, create a system where the airline benefits from you gaming the system.

For example, imagine you 'game' the system in such a way that you will definitely be in an otherwise-empty seat, and you would only buy a ticket if you successfully got your intended discount. Then, airlines wouldn't be incentivized to 'adjust' and you could keep getting discounts.

We are playing with a few prototypes to do exactly this at http://www.projectcaspini.com. Sign up for the mailing list if you are interested.

lifeisstillgood• 12 years ago

I think the absolute dynamic pricing is what annoys me - it's like an inverse Lake Woebegone effect - simply everyone who gets on a plane assumes that they overpaid.

I suspect there is somewhere in the behavioural economics literature a pricing mechanism that has many benefits of dynamic pricing but allows the buyer to feel I control - they know the complete range of fares and the complete range of prices and so feel able to buy without the fear if missin out.

Throwaway12242• 12 years ago

Here's the theory behind the price changes:

http://en.wikipedia.org/wiki/Revenue_management

ExpertFlyer• 12 years ago

What no one is telling you is that the actual published fare tariffs don't change that often. What does change and is dynamically managed by the airlines revenue management departments is the availability of different fare classes that the tariffs book into. It's the combination of fares and fare class availability that determine the current fares available for a flight (and not just the lowest fare).

On ExpertFlyer, we show all of this hidden raw information that normally only travel agents have been able to see as we buy the data from the airline reservation systems. The first few pages of our education guide give a simple overview of how this works: http://www.expertflyer.com/edu-guide.pdf

oostevo• 12 years ago

In case it helps:

I've been a subscriber for several years, and this is the first I've seen the Education Guide. It might just be because I'm oblivious, but perhaps you might want to make it more prominent on the "New to ExpertFlyer" page?

I've learned everything in there by osmosis at this point, but the strategies would have been a cool thing to know when I was getting started.

pbreit• 12 years ago

An article like this needs to at least mention that the relatively unsophisticated pricing approach by Southwest has led it to generally outperform the rest of its competition for decades (I know, staying out of bankruptcy is not a very high bar).

coldcode3• 12 years ago

Since their fares are not comparable since they don't let anyone show theirs in the same list as other airlines, you really cannot know if they are cheaper or not. In reality this means they are able to set their prices on average higher than those who have to compete in a list. Better control vs. more exposure.

sib3• 12 years ago

Much of Southwest's profitability actually comes from doing a great job hedging against fuel cost changes, rather than making extraordinary margins on the seats.

Air Fares 101 – Why do fares change all the time?

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