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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