Options Away Provides a Way to Guarantee a Fare Without Buying a Ticket

It’s not often that I write about specific websites here on the blog, but Options Away really caught my eye. The idea is very simple. You can pay a small fee up front to lock in your fare for a certain period of time. Then you can buy the ticket at that fare before the time limit expires. If you’re used to flying United, this might sound like FareLock. It is, but it’s muchOptions Away Logo broader than that.

What I found interesting was that the founders of the company aren’t from the airline world at all. In fact, they’re financial-types and that’s why they saw the opportunity. If you’re familiar with the idea of a stock option, this is the same basic premise.

Before we talk about the product, let’s talk about where these guys got their inspiration… on Wall Street.

Let’s say you’re bullish on United’s stock skyrocketing but you don’t want to invest the money to buy the 1,000 shares at $36.98 each (that’s $36,980 total) that you want. Instead, you find a third party that is willing to sell you what’s called a “call option” on the stock. That let’s you pay $5 per share ($5,000 total) to lock in a set price (let’s assume in this case it’s the same $36.98) for you to buy those shares over a fixed period of time (let’s say two years).

Flash forward two years, and United is now trading at $56.98 per share. Since you hold those options, you can now buy 1,000 shares at $36.98 each ($36,980) and then immediately sell them at market price of $56.98 ($56,980). In reality, you never have to shell out any money. You just get $20,000 in your pocket. Congratulations. You’re initial $5,000 investment just paid itself back plus $15,000.

On the other hand, if United’s shares today are worth $25.98, your options are “under water” and are worthless. You lost the $5,000 you invested. But that’s really the point of these options. The investment is much less than buying actual shares, but it limits the upside and sets a fixed price for the downside. You’re paying to reduce your risk, and that’s the idea behind doing this with airline tickets.

Now, instead of thinking about the value of United as a company, think about the value of a plane ticket. You do a search and find that you can buy a ticket from LA to Chicago for $402.38 in September.

Options Away

You’re fine with the price, but your plans haven’t completely gelled yet. You might have to go out a day later. And on the return, you aren’t sure if you can get a ride at that time of day. You’d hate to see the price go away but on the other hand, you’d hate to get stuck with a $200 change fee. Instead, you decide to pay a little to lock it in now without purchasing the ticket.

As you can see above, Options Away offers call options at varying prices depending upon how long you want to guarantee it. The longer you hold it, the more expensive it costs, as you would expect since it’s easier to predict pricing for a shorter period of time.

The 24 hour hold is easiest. You can always buy a ticket and then get a full refund within 24 hours. This one just lets you hold it without paying (as American will let you do today, but most make you pay). There’s no real risk here so the cost is low.

After that, the pricing is solely at the discretion of Options Away. The airline isn’t taking any risk here. Options Away is the one that has to build a big fancy algorithm that will help determine how it should price these offerings. In the end, the company has to hope that it earns more money off selling options than it loses having to pay the traveler the difference between the locked in fare and the current price. If you buy an option to hold it for 21 days, then you’ll pay $36. And if the price goes up within that time, you can still buy the ticket for $402.38.

You might think that $36 on an expensive ticket is a lot of money. And it is, but you’re guaranteeing the fare for 21 days. A lot can happen in that time and the price has to reflect that risk accordingly. That’s why I tend to think that the 3 day hold for $9 may be the more popular option. People don’t like feeling pressured into buying things immediately, but with airlines, you worry a lot about the price changing. This provides a guarantee that it won’t.

What do you think? Would you ever use this?

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34 Comments on "Options Away Provides a Way to Guarantee a Fare Without Buying a Ticket"

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Stephen Kalman
Guest

I might use it if the fare difference was my money. Since I can bill back airfare as expenses, there is no advantage to me.

It will be interesting to see if the rate per day of hold changes as the number of available seats goes down, or as the flight date approaches.

noahkimmel
Member
the 24 hour one is interesting as it preys on ignorance since airlines are required to refund you within 24 hours. Granted, it now makes an implicit 48 hrs, (24 with the option, then 24 after booking). I do think it is a good idea and a product which has a need. I wonder if the designers are going to need to gain travel agent skills quickly when things start to happen to reservations, complex codeshares, etc. The pricing algorithm is going to need tuning and I wonder if the cost changes for each itinerary based on price and time… Read more »
Eric A.
Member

Isn’t this going to wreck havoc with GDS inventory and airline yield management systems??

MeanMeosh
Guest
Interesting concept. From briefly perusing their site, it looks like they offer options on a limited number of city pairs for the moment, and only on domestic flights, but still, the product could have some decent utility for travelers, especially those that need a few days to clear work schedules, coordinate with relatives, etc. It appears they do not allow a 3-day option purchase less than one month in advance, and then stagger it out an additional 7 days for 7, 14, and 21 day holds, so as to prevent gaming the system (i.e. putting a 21-day option on a… Read more »
MeanMeosh
Guest

Sorry, dyslexia strikes in my second paragraph – should read purchase a first class seat at a coach fare.

David SF eastbay
Member
So if you use a hold option, is the space really being booked? If so wouldn’t the airlines expect payment for that space if the fare had to be paid say within 24 hours and you chose a longer hold. Do these people have contracts with the airlines to hold fare for a certain period of time? Sounds fishy and a good way to have the airline later on say you didn’t meet the advance purchase rule of the fare and make you buy a higher walk up fare to travel or just cancel your reservation if they notice a… Read more »
MeanMeosh
Guest
The way I understand it, from my limited playing around with the website, is that you aren’t actually holding or booking space. Nothing is actually booked until you log back in and hit the purchase button, when they buy it for you (these guys are an ARC-accredited travel agent, according to the FAQ). If the price goes up from $250 to $450 in the meantime, you pay Options Away the $250, and they pay the airline $450 and eat the difference. So, I don’t see any risk of running afoul of airline advance purchase rules – if I’m understanding this… Read more »
DAB
Guest
Cranky – if you are long a call option (your UA stock example) in general you have unlimited upside and the seller unlimited downside (think of UA going to a million a share in your example). In this case as I understand it, the buyer is long the call on the price of an airline ticket, however neither they have unlimited potential gain nor the seller potential loss since at some point the flight just sells out. You don’t have Brownian motion over all the real numbers as your asset price model. Actually, there are a lot of factors here… Read more »
jaybru
Member

Whatever!

!. In the first place, why are ticket prices so volatile?
2. Why can’t tickets be re-sold, that is, after I bought whatever I bought?

Looking at the lowest fares on UA BWI to LAS, one-way, for the next four weeks beginning tomorrow:
F-S-S-M-T-W-T

jaybru
Member

The fares, F-S-S-S-M-T-W-T:
$620-512-274-324-274-273–348
288-418-566-855-267-101-115
115-111-135-208-100-131-190
277-115-100-130-101-100-115

Sorry, for my fat-finger, but why would any industry, any company feel the need to price like this? Prices like this are nuts, and options seem so…well, whatever.

Sean S.
Guest
I think it is an interesting idea especially for expensive international flights. I had to hold back on a recent international ticket purchase due to some issues with dates and ended up having to pay 500-600 more per ticket due to holding off. A service like this would have been great to have known about and I would have saved significant money. That said, unlike your options discussion there is simply no upside for OptionsAway as the best they can hope for is that someone comes back and there is little or no change on the price. The reason why… Read more »
jfh28
Member
In the financial markets the only people who consistently make money with option trading are those who write the options…..why…..because the vast majority of options bought will expire worthless. Option trading is for professionals only who have strategies in place to pair them, offset them, hedge them or otherwise limit their loses. The average trader who buys an option is going to lose his money. Options Away is no different…..these guys are not going to write an option that they will lose on. Look at the example provided on a flight 9+ months out……..there is very little chance that between… Read more »
Sean S.
Guest

Except alot of carriers will warn you about low availability anyways on their own websites. While I’m unsure the number at which they warn you, I have most definitely seen warnings on delta.com and other sites that tell you “Only 4 left at this price!” or other similar exhortations to buy.

Jason H
Guest
If OptionsAway is a full travel agent, won’t that mean you have to go through them to make any changes rather than through the airline? (Or have the airline charge extra to take back the ticket and change it) One other thing I noticed from the website is that they will only offer the longer hold options for flights that are 2 months or so in the future, which does make good business sense since prices are likely to rise the most, but also the sorts of tickets that people are more likely wanting to hold. Maybe in the future… Read more »
Nick Barnard
Member
I really like this idea, although I hate that it has adopted the financial industry lingo of “option”. Options like this are a good deal like insurance, except that they’re not insurance. Since they’re not legally insurance (but act a whole lot like it) they don’t have all the reserve requirements of insurance. This was one of the problems leading upto the 2008 financial crisis. But, back to OptionsAway. At least they’re providing a real product that directly benefits end users, with increased peace of mind.. I’ve bought some a bit ago, except that we’re almost at the point of… Read more »
DesertGhost
Guest

It’s too bad you can’t buy and sell these options as you would stock options.

Heidi B
Guest
Thanks Cranky Flier for such a thorough piece – you really have a handle on what we are trying to accomplish here at Options Away. Our team also really enjoyed the quality of comments and questions raised, and the fact that you answered most of them exactly as we would have! At Options Away we focus on providing the consumer flexibility and peace of mind – and we have found that folks are willing to pay for this convenience. For example, a one-way 24 hour hold is only $2 and we cover multiple carriers. Sure, on airline sites people can… Read more »
Iain
Guest

@Heidi B, what happens if the tickets sell out before the option expires? Is your company on the hook to upgrade the customer or find another acceptable alternative?

Heidi B
Guest

Hi Iain, Options Away would indeed provide an upgrade should that be the only seat available at the time of ticketing. Our system is constantly monitoring the availability for the flights that our customers have held so it is very unlikely that we would not be able to provide the chosen itinerary. In the remote event that a flight did sell out before we could purchase a ticket, then we would find an acceptable alternative for our customer.

Franken S
Guest

Seems to me like more absolutely useless middle man nonsense. The lack of transparency in these matters is beginning to be very disconcerting.

How’s about this? I’ll give you an option. Stay out of our bank accounts or go to prison.

L Andrews
Guest

No airline is “required” to refund any money in 24 hours. Maybe some airlines do this as policy, but there is no rule that requires this. American Airlines refunds nothing 30 seconds after you make a purchase.

Cathy Gross
Guest

Is a two day hold a full 48 hours from the time the Hold is made?

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