So…how are airfares calculated and can you trick the system to your advantage?

Airplane in airport

Today, reading about personalised pricing in chapter 2 of Information Rules got me thinking about the idea of companies selling products at a different price to each consumer. I wondered to what extent are companies tricking us into paying more than we should. The airline industry immediately jumped into my mind as the main suspect for such a strategy.

Airlines employ a technique called yield management that constantly adjusts flight prices in order to maximise their revenue. Different customers have a different price sensitivities; personalised prices allows airlines to sell as many tickets as possible.

Discriminatory Pricing

So…how exactly are airfares calculated?

Airlines use complex mathematics and a variety of factors  to calculate the price of each ticket. While I knew some factors (such as the amount of weeks in anticipation before departure), the more I researched the more surprising information I discovered:

  • Day and time of booking – Airlines adjust their prices based on supply and demand at different times and days of the week (source). Fridays and weekends tend to be expensive. Many airlines role out offers on Mondays and Tuesdays; analysis by Hopper.com found out that Tuesday at midnight is the best day of the week to book.
Flight prices per time of day
(Image credit – Huffington post)

  • Weeks in anticipation – Prices for flights usually increase as the date of departure arrives (source). The largest hikes usually come after 20 days before departure.

Effect on price - days before departure

  • Where you book your ticket from – Some airlines use your location to determine how much you should pay for an airfare (source). Buying a ticket from AMS from BCN from Thailand can be cheaper than buying it from the Netherlands.
  • Cookies and tracking – Airlines place tracking cookies in your devices. Some airlines increase their prices after they notice you checking a certain flight and not buying it immediately (source).
  • Seasonality – Some destinations are more expensive during certain times per year than others. For example Barcelona in summer can be over 50% more expensive than in Winter.
  • Hub or not hub – “Airlines often price tickets from one city to another through a hub cheaper than flights that terminate at the hub. More details here.

Can I trick the system to my advantage? 

  • Easy – Price alerts: Websites like Momondo, ExpediaKayak, and Skyscanner can provide you with price alerts and other information that can help you asses whether the current price is overpriced or underpriced. I especially like Momondo since it provides statistical predictions for price increases based on days before booking, day of the week for departure, and season.
  • Easy – Smart booking times – The best time to book a ticket is Tuesday around midnight or Wednesday morning, avoid booking on Fridays and weekends.
  • Easy – Clear your cookies – Clear your cookies or use Chrome’s Private browsing.
  • Medium – Change your location – This article explains the concept.
  • Pro – Fuel dumping – The final price in an air ticket consists on several things including 1) The base fare for the airline, 2) Country and airport Taxes, 3) Airline surcharge (YR). There is a whole community in the internet that is dedicated to finding hacks to reduce or completely eliminate the airline surcharge (which in many cases can be even larger than the base fare. Here is a basic guide to give you an idea.
 

Fares

**Sources within article**


Author: Dirk Breeuwer – 329445
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2 responses to “So…how are airfares calculated and can you trick the system to your advantage?”

  1. 439328kn says :

    Flight pricing is a very interesting topic to me, since I frequently have to travel and searching for the best price is quite time consuming.
    Similar to what you have described in your blog post, the Economist (2011) describes an “eight-week rule” for purchasing flight tickets. The article states that on average 8 weeks prior to the flight are the cheapest time to book the ticket. Of course, price increases caused by seasonality, such as the main holiday season in summer, show different time lengths. During this time for example, the average recommended time to book a flight would be about a 100 days prior to the flight. According to a more recent article by CheapAir (2015), it is argued that 1 to 4 months before a flight is the “Prime Booking Window”. For summer flights it is stated that in 2014, flights for the summer were cheapest 74 days prior to the flight. Thus, booking early enough is essential if we do not want to dig deep into our pockets.

    And thank you for sharing Momondo. I didn’t know that homepage before, but I like the pricing bar graphs on the page!

    Sources:

    Cheapair.com,. (2015). When to buy airline tickets – Based on 1.5 Billion Airfares | CheapAir. Retrieved 5 October 2015, from https://www.cheapair.com/blog/travel-tips/when-to-buy-airline-tickets-based-on-1-5-billion-airfares/

    The Economist,. (2011). Getting the cheapest flights. Retrieved 5 October 2015, from http://www.economist.com/blogs/gulliver/2011/02/when_buy_airline_tickets

    Melanie – 439328kn

  2. jobdeibel says :

    Thanks for sharing, very interesting blog post. It is generally known that airfares vary tremendously, but I was not aware of the tools available to benefit from the system. The technique I used to purchase airplane tickets and avoid being tricked by the system was to book a ticket with as few search queries as possible. I only used the official airline websites, no online travel agencies or meta-search engines, to get an indication of the prices. Eventually, when I had a clear overview of the prices from the different airlines I made my purchase decision. I was convinced that by being decisive I was avoiding the major price jumps and get a reasonable price in the end but this turns out not to be entirely true. Anyways, after reading this post I will most certainly take a different approach when booking my next ticket since most of the tips and tricks you listed are fairly easy to use.

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