How do airlines price airfares?

How do airlines price airfares

So you find yourself online searching for airfares. You stumble across a sale with an airline however, by the time you go to book it, the price has increased. You’re frustrated and don’t understand why the same airfare is not available. Take your customer hat off for a minute and let’s take a look at how airlines price airfares and what are some of the factors that determine change.

Raise your hand if you studied economics at school? It’s a little like economics 101. The law of supply and demand. Airlines are like any other business and need to be profitable. After all, if they were not profitable neither you nor I would be travelling anywhere.

Fare classes

Airlines set their airfares by booking classes which is not to be confused with travel class (economy, business class). There are a series of letters that do vary between airlines however, some are quite standard such as ‘Y’ for full economy fare and ‘J’ for full business class fare. In a very basic overview, there are algorithms and systems in place that will set pricing within these booking classes and control availability. As seats sell in a particular booking class, the price of that booking class will increase.

Buying Behaviour

There are other factors that determine the prices, such as buying behaviour. Data is a wonderful thing and assists with traveller profiles such as leisure or corporate. For example, corporate travel is generally last-minute and leisure travel is booked in advance. With a basic scenario such as this, airfares on key leisure routes will start high for advanced purchase and airfares for key corporate routes will start lower. Essentially the airlines are maximising their revenue in the times where that traveller type is most likely to book.

When we look back to low-cost carriers (LCC) hitting the aviation scene, we saw a change in traveller attitude. Where short-haul flights were concerned, most people did not care for the extras that were included in the cost. Full-service airlines saw this as an opportunity to remain competitive. Many have introduced low base fares that do not include seat allocation, meals, or luggage allowance for example. Travellers are then required to pay for additional extras should they choose to include them. Again, another way to capture a new market, remain competitive and maximise revenue.

Post Covid-19

Travel has certainly never been more complicated than it is now. Airlines are in survival mode with Governments placing restrictions on passenger loads, international borders closed in some countries and the list goes on. There will be many things to consider for how airlines price airfares in future. When we think of the airline debt and ongoing coronavirus policies and restrictions, perhaps this could push fares up? Ultimately there will be a period where airlines will want to encourage people to travel again and provide lower airfares to do so. There is still enough competition to keep the air-fare, but may just be a bumpy ride as they iron it out.

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