Why do Fares Change so Often? (Ask Cranky)

You know what time it is, kids? That’s right, it’s Ask Cranky time! (I need to get out more often.) There have been some great questions coming into the inbox lately. Please keep it up, as I’m always more than happy to answer them.

I’m traveling from ROA->SFO in June and SFO->BOS a week later in on UA, and I bought a ticket last week for $456. Today, that same fare, on the same flights is $95 less. That makes no sense to me. Are the UA systems watching minute-to-minute demand for the legs of that trip and ramping up the price as the demand goes up? As demand goes down, do the prices the go down? How can they plan any sort of revenue stream for this? I understand the need to maximize their income, but part of the problem, as I see it is that the flying public sees stuff like this and doesn’t know how to plan. Would the the airlines just be better off just setting a seat price and sticking with it?

Bob from Virginia

Ah yes, the fare question. It’s something that comes up a lot but rarely is there a satisfactory answer. There is definitely a lot of voodoo involved. Actually, it just involves a dart board and some beers. (I kid, I kid.)

The reality is that those working in the world of revenue management understand the way pricing works, but those on the front line who are dealing with customers most often aren’t really given that information very well. So it does end up Ask Crankywith this sort of “black box” aura to it. In reality, it’s two forces working together that cause the changes you see.

There is pricing and then there is revenue management. Sometimes they’re handled by the same person and other times they’re separate. The pricing guys (what I used to do) set all the fare levels and put them in separate fare “buckets” that are usually not seen by the public. (You can see them, but it probably won’t mean much to most people.) The revenue management guys and their fancy systems then decide how many seats to sell in each bucket on every flight.

Usually not much changes until you’re about 3 months out from departure. Then these system kick into gear and start figuring out how many seats to sell on each flight using all different kinds of factors. This will adjust as time goes on. For instance, if the system sets a limit and then sees that a flight is booking faster than predicted, it may clamp down on the number of cheap seats out there because demand is higher than expected. On the other hand, if it’s really slow to sell, the system may open up more cheap seats to stimulate demand.

On your ticket, you could have seen one of a few things.

  • It’s possible that it was simply a pricing change. Either a sale fare came out or a regular fare was changed for a variety of reasons, and that’s why you found a lower fare.

  • On the other hand, it could have been a revenue management change. Maybe the system realized that the higher fares weren’t selling very well so it opened up the lower fare buckets and the price the public sees went down.

  • You could also have just been a victim of circumstance. When you bought, there may have been no seats in the lower fare class available, but someone could have canceled their seat and the cheap fare opened up again without any input from the airline.

For most airlines, the goal of maximizing revenue doesn’t take into account the impact on the customer of rapidly changing fares. More transparency would be nice, and some airlines have moved that way. But previous attempts to simplify the system have failed. American tried it in the early 1990s with only four fare types, but that blew up into a massive discounting brawl and fell apart. More recently, Delta tried it as well with Simplifares, and that quietly disappeared.

Some airlines, like Southwest, have prided themselves on transparency, but over the years they have become less and less transparent like the rest. The airlines that just post a fare and stick to it are usually the ones that end up out of business because they can’t compete.

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24 Comments on "Why do Fares Change so Often? (Ask Cranky)"

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David SF eastbay
Member
When I started in the airline business many years ago, fares were simple and easy to understand. Domestic had a roundtrip 30day -Q- and 7day advance -B- fare. Tuesday and Wednesday were lower fare days. We had three one way fares F,C,Y except in markets like LAX-JFK which had a 7day advance MAP7 fare. That was it. You knew the rules by heart and so did the public. International fares were just about as simple. Now a days it’s like this blog question, no one knows what you will pay. The rule of buying a ticket fare in advance giving… Read more »
MathFox
Guest

Cranky doesn’t mention that there can be conditions attached to lower fares (No change, change fees, no cancellation, cancellation fees, minimum stay…) all in the name of revenue management (and customer confusion). A smart, knowledgeable traveller can play the system, but even then you might pay more than you like; or you can be lucky when the airline employee is more confused than you are.

A
Guest
How do these fare buckets work into websites like Priceline and Hotwire? At least what those websites originally did, in lieu of their current format no different than any other travel site. Back in the pre-9/11 days I would often use Priceline for MSP – YYC flights and almost without fail could get a R/T for $150…always under $200. When those deals started disappearing I used Hotwire, aka, don’t know the airline until you book the flight. Well, knowing NW was the only non-stop I could game it and get flights for under $300. Meanwhile, the whole time NW was… Read more »
Brian
Guest

So it sounds like the reason it all seems completely arbitrary is because…it’s completely arbitrary. (With a system behind it that even the people running it don’t understand?)

Gary
Guest

and then there’s the question: suppose you buy the ticket and the fare goes down. can you get a refund for the difference? different airlines, different rules (even within the airline you can get different answers). another dimension of “hide the ball.”

The Traveling Optimist
Guest
The Traveling Optimist
Gary – What I’ve seen regarding changes of any kind to a ticket once it’s been issued is a change fee. For some reason which still escapes me they won’t change the name on the ticket but they will change departure and arrival dates and times along with return any difference in fare to the customer. For a fee. You then have to decide if the change fee will net you any return or not. In most cases, no. Brian – Airfares change like the price of gas and both are driven by years, decades of consumer behavioral data. Supply,… Read more »
jaybru
Member
Cranky, You deserve a medal for even trying to answer the question! No, fares aren’t arbitrary. That’s very sad, because, to think, some human being had something to do with coming up with them, and then another human being having something to do with allocating them to specific flights. In fact, why not let supply and demand rule? Right now, fares are just about as crazy as they have ever been. Checking UA’s web site, I see it is offering 8, some days 9 non-stops from IAD to SFO. Lowest fare, one-way, including taxes/surcharges for the non-stops, “available” (meaning there… Read more »
Roger
Guest
Wikipedia has a fairly good page about it – http://en.wikipedia.org/wiki/Yield_management My own opinion is that the airlines created problems for themselves. Almost all travelers are now aware that the person seated right next to them probably paid a significantly different price for exactly the same service/product. Since the airlines have been messing around on price, the travelers have concentrated on it too ultimately using it as the only reason to choose one carrier over another. It is quite incredible what happens. I used to follow a blog where they would mention on a Wednesday evening that one carrier had increased… Read more »
Greg
Guest
JK In fact Supply and Demand do entirely rule the fare structure. While they do not use an instant model of S/D, they have years of data to comb through to find the optimal price point. To prove this point, just look at the average load per aircraft, they are flying near full. This is a good indication that the airline is selling most of it’s inventory, so the price points must be just right. While the airfares may seem arbitrary to most consumers, to a statitician with access to the the data, it would look just right. And remember,… Read more »
jaybru
Member
CF, Obviously, there’s story for fares in every market. And, you certainly have an understanding of it, and make it understandable. But for me, now almost exclusively, a discretionary, leasure traveller, with time and money to fly often, I don’t because I rebel at the fare craziness. And, I don’t see how any business can put up with this, either. Take Tuesday, June 2, UA, IAD to SFO, one-way. 8 non-stops, 5 charging $119.60 [LAPN9], 3 charging $294.60 [VA3GN]. My guess is that nothing about these fares has anything to do with UA, everything to do with Virgin. Nice way… Read more »
The Traveling Optimist
Guest
The Traveling Optimist
JK – I was working at American in the early 90s when ValueFares was introduced: F, Y, 7 and 30-day advance. There were markets at the time that offered up to 100 fares based class of service, time of day, direction of travel and advance purchase. The simplest explanation is that the initiative took the average fare for each market and derived the four-fare structure. This included full price, unrestricted discount, restricted discount, wholesale, private label, leisure volume (cruise), government and military fares along with the net value of corporate contract discounts. The intent was to eliminate spot-market, discounting and… Read more »
The Traveling Optimist
Guest
The Traveling Optimist
JK – I agree with Cranky. One last suggestion for you is to at least TRY to understand the crazy world of airline pricing from the airline’s perspective. It will help you find the fares you are willing to pay instead of digging thru the outrageous ones that clutter and boggle the mind. Why is the 2PM only available at $500 while the 7PM is still on offer at $129? Simple: All the cheap seats are sold out at 2PM but there’s plenty left for the last flight of the day. Biz travelers tend to want to be home in… Read more »
US Travel
Guest

Airline seats are a commodity. Just like any commodity they are trying to sell all of them for the most money they can get. Most airlines use computer programs to figure out how much to sell each seat and when they should raise or lower they seat price. It is all supply and demand.

Kathy
Guest

I started at an airline in 1979 at the beginning of deregulation. We had 4 fares, one for payment by cash, one for payment by cash (with a meal), one for payment by credit card, and one for payment by credit card (with a meal). We sold our tickets through Ticketron (predecessor of TicketMaster). Ahhh, we were so ahead of our time!

jaybru
Member
All good comments, and to the Optimist, I do remember the AA 4-fare experiment. As someone who had been involved in transportation pricing much of his life, I appreciate the work of pricing analysts. What is so often missing in pricing, however, is understanding, or appreciation if you will, of what the customer is looking for. Of course, value, but simplicity, understandability, and a little consistency from day-to-day. I TRY to understand airline pricing. I’m not looking simply for the cheapest fare, but whatever I get, I want it to have value for me, to look like I’m being treated… Read more »
thaikarl
Guest
i read all this twice. and i still don’t get it. i don’t know all the acronyms – oh, UA is united airlines now i have to read it again. so i’m still wondering why if i have the same travel dates, same destinations (seattle to bangkok – okay SEA to BKK) when i goto the price aggregates like kayak.com etc, one day the cheapest price is 850$. next day it’s 1150$ next day it’s $950 etc etc. and this is booking at least two months in advance for a two or three month trip home and back. then what… Read more »
deb
Guest

I have been trying to book 2 passengers on Delta flights from CVG to BOS. The fares for the same days and times have varied from 475.00 total for non-stop to 903.00 for the same flights. I have tried to book the flights at the lower fares on 2 occasions only to be notified in mid-transaction that “we’re sorry the lowest fare for these flights has increased”…..significantly. It really smells of the old bait and switch. How in the world does one obtain the lower fare?

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Spot
Guest

Oh boy! What a mess!

Here is my recent experience with travel websites.

4 days ago, SJC->SJD on Alaska on 3 travel sites, $494 RT

1 day ago, same FLIGHT, $454 RT on same 3 travel sites

This morning, 2 different flights show up at $454 RT on 3 travel sites. So, I get on phone to tell a family member. While he is booking $454 flight on bookit.com, I go to bookit.com, and the other 3 sites AT THE SAME TIME, and fare have gone up to $494! (for the same FLIGHT).

There is something more sophisticated going on here.

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