WHY YOUR AIRLINE TICKET HAS A PRICE NOBODY CAN EXPLAIN
Two people can sit next to each other on the same flight...
Same plane.
Same route.
Same departure time.
And pay completely different prices.
One pays €80.
The other pays €320.
It isn't necessarily a mistake.
It's the result of one of the strangest pricing systems in business.
AIRLINES DON'T REALLY HAVE ONE PRICE
Airlines divide seats into different fare classes.
Each class can have its own price, rules and restrictions.
Some tickets might be:
Non-refundable.
Changeable for a fee.
Fully flexible.
Available only when booked in advance.
Or restricted in other ways.
The airline decides how many seats to make available at each price level.
So a plane with 180 seats doesn't necessarily have:
180 seats × one price.
It can have dozens of different pricing combinations.
THE FIRST 20 SEATS MIGHT BE CHEAP
Imagine an airline has 180 seats.
It might make a small number available at €70.
Once those are sold, the next group could cost €100.
Then €140.
Then €200.
And eventually €400 or more.
The seats aren't necessarily different.
The customers are.
The airline is trying to estimate how much different types of passengers are willing to pay.
THIS IS CALLED REVENUE MANAGEMENT
Airlines use historical booking data, current bookings, demand forecasts, competition, seasonality and other factors to decide which fares should be available.
The system is constantly asking:
How many seats have we sold?
How quickly are they selling?
How much demand do we expect?
Are competitors cheaper?
Is this a holiday period?
Are business travelers likely to book later?
The answers can change which prices are available.
AND THIS IS WHY WAITING CAN BE EXPENSIVE
Suppose an airline expects a flight to become very popular.
It doesn't want to sell every seat cheaply six months beforehand.
So it might release only a limited number of low-priced fares.
As demand increases, those cheaper fare classes can disappear.
Then the next price level becomes available.
This is why the same flight can become dramatically more expensive as the departure date approaches.
The U.S. Department of Transportation notes that airlines often set aside only a limited number of seats at lower fares on desirable flights.
BUT THERE'S A BIGGER TRICK
Airlines aren't only pricing based on the seat.
They're also pricing based on willingness to pay.
A tourist planning a vacation months ahead may be extremely price-sensitive.
A business traveler who needs to attend a meeting tomorrow may have far less flexibility.
So airlines create different fare products and restrictions that appeal to different customers.
Historically, restrictions such as advance-purchase requirements and minimum stays have been used to separate different types of demand.
THE SEAT IS A PERISHABLE PRODUCT
This is what makes airline pricing so unusual.
Imagine you own a shirt.
If nobody buys it today, you can sell it tomorrow.
But an airplane seat is different.
If Flight 742 leaves with an empty seat...
that seat is gone forever.
You can never sell yesterday's empty seat.
IATA describes every flight as a perishable good because the opportunity to sell disappears when the flight departs.
SO THE AIRLINE HAS TO GUESS
Sell too cheaply...
and the plane fills up with passengers who could have paid more.
Sell too expensively...
and the plane leaves with empty seats.
The goal is somewhere in between.
MAXIMIZE REVENUE
WITHOUT
PRICING AWAY TOO MUCH DEMAND.
AND IT'S GETTING EVEN MORE COMPLEX
The industry is moving toward more dynamic offers.
Instead of relying only on traditional fixed fare classes, airlines are increasingly exploring systems that can generate offers based on shopping context, market conditions and customer requirements.
So the future of airline pricing isn't necessarily:
"Seat 24A costs €150."
It's increasingly:
"What is the best offer we can make for this particular shopping request right now?"
THE BUSINESS MODEL
LOW PRICE
↓
ATTRACT PRICE-SENSITIVE CUSTOMERS
↓
HIGHER PRICE
↓
CAPTURE CUSTOMERS WITH GREATER WILLINGNESS TO PAY
↓
FLIGHT DEPARTS
↓
EVERY SEAT HAS BEEN MONETIZED AS WELL AS POSSIBLE
That's why airline tickets can look completely irrational.
They're not designed to have one "fair" price.
They're designed to maximize the revenue from a limited number of seats.
SIMPLE IDEA
The price of an airline ticket isn't simply the cost of flying you from A to B.
It's the result of a constantly changing calculation about demand, scarcity and willingness to pay.
MAACAT PERSPECTIVE
Airlines discovered something powerful:
You don't need to charge everyone the same price to sell the same product.
You just need to understand how much different customers are willing to pay...
and build the pricing system around it.
