Have you ever wondered? Alex Astafiev , one of our Product managers, explains everything on the subject!
The pricing of tickets by airlines is a fascinating and complex subject at the same time! Why are the prices changing all the time? Do they increase but do they happen to decrease too? What is the best price? Many of you must have asked yourself these types of questions. While for many it is not very clear what causes prices to change, myths have multiplied. One of the most common myths is “that it is cheaper to book a flight at night.” In summary No ! And here is the detailed explanation of the reasons.
How airlines set their prices
It will surprise many, but airline profits are generally low. On the one hand, airlines have to contend with powerful monopolies: aircraft manufacturers, global ticketing systems (GDS), airport managers, aviation authorities and many others, which lead to a rising costs. On the other hand, the deregulation of the airline sector has fostered competition with the emergence of low cost companies, which has given consumers more choice. They can also easily compare the options of the tickets available which will also have an influence on the prices downward.
To ensure that each of their seats is sold at the best possible price, airlines use ultra-sophisticated software: Revenue Management Systems (RMS).
The income optimization system: an art in its own right
It arises from certain specificities of airline operations.
The product that an airline sells is perishable. As soon as the boarding gate is closed, any empty seats left on the plane can never be sold again.
The number of seats an airline can sell on each flight is usually fixed. If many seats could not be sold for a given flight, it is not possible to reduce the number of seats on the plane. The plane could be substituted for a smaller plane, but you could then have a lot of passengers traveling on the next flights that plane flies over the rest of the day.
Demand varies. While the Monday morning 8 a.m. flight between the capital and a country’s second-largest city is packed with business travelers, it’s impossible to know exactly how many seats will be occupied for each Monday 8 a.m. flight. throughout the year.
The revenue optimization system is based on both past and present sales data and attempts to balance these three risks:
– You can choose not to sell this seat today hoping to sell it at a higher price later, but you run the risk that it will remain unsold;
– You sell it right away but you could have sold it at a higher price later;
– You sell it for less than what the passenger might have been willing to pay.
It should also not be forgotten that several factors influence the progression of sales:
– Competition between airlines,
– unforeseeable events,
– fluctuations in exchange rates and all other possible factors
Predicting the future based on past data is difficult from any point of view.
In addition, many (if not the majority) of airlines operate on networks. Each flight does not only satisfy the demand between the city where this plane takes off and the city where it lands. If you are on a Paris – New York flight for example, you may learn that your neighbor is traveling from Moscow to Los Angeles, while you are making Paris – Vancouver with a stopover. This adds even more complexity to the pricing. When an airline determines the prices on a flight between Paris and New York, it must take into account the prices coming from all the possible departure airports and destinations.