r/explainlikeimfive • u/NattyBat • Nov 22 '12
Explained ELI5- Why do airline ticket prices fluctuate so much on a day to day basis?
Pretty self explanatory. I realize that fuel prices go up and down each day but other than that is there any other factors that impact it?
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u/Xasf Nov 22 '12
Yay it's finally my day to shine! I am an IBE (Internet Booking Engine) software developer working for one of the bigger international companies in the industry, I basically make the websites you go to buy your tickets.
Here is my ELI5 explanation, if anyone has more detailed questions I'd be happy to answer them as well:
There is a limited number of seats in an aircraft. The people working in the airline divide them into slices, like you would with a cake for example, and give a difference price to each slice.
So for example if an aircraft has 200 seats, they will first divide them into something called "cabin classes", usually as first / business / economy. Seats in the first class slice of the cake have all the toppings and choco-chips and fruit pieces: They are very comfy, have big TV screens and get the best food. Business class is like that but with smaller seats and less fun, and economy class is just to get you through your flight (although you usually still get some food and a small TV). Since many people can't pay for first and business slices, the majority of the seats will be in the economy slice, may be like 8 / 16 / 176 for our 200 seats.
Now that you have those 176 seats in a huge single slice, you notice that not everyone wants to eat the same amount of cake. Some people will just want a taste, and they don't want to pay for a big piece which they couldn't finish anyway. Other people are really in a hurry to eat some of the cake, so they would be willing to pay more to get a piece. So you further divide your big economy slice into "reservation classes" (also called by the fancy name of Reservation Booking Designators). Out of those 176 seats, you can say that 26 will be very cheap but don't get any food on the plane, some other 40 are reasonably priced but you have to pay for them at least one month before the flight, another 30 are very pricey but you can get them even in the last second and so on, so that everyone can get a piece of cake according to their money and their needs. When they buy such a slice, we say that they bought tickets.
So let's say someone wants to buy one of those really cheap tickets. But there were only 26 of them to begin with, and people buy cheap tickets even if they are not sure they would be able to use them later, because hey they are cheap. So when you go to the airline website, it will tell you "Nope, you can only get one of these more expensive tickets". But 5 minutes after that, someone who bought a cheap ticket may decide he doesn't want it anymore and return it, so when you check back during the same day what you will see is that ticket prices dropped like crazy.
Another thing is this: The airline wants to sell all slices of the cake, because they already paid for it and baked it. And if some slices are left, they will go to waste when the airplane lifts off with empty seats. So the people in the airline look at each flight, and if the slices are selling very well and just a few are left, they increase the price above normal because hey, people clearly want a piece of this cake, so someone will likely pay extra for the last pieces. But if there are a lot of empty seats left, they will lower the price below normal to lure more people in before the plane leaves the airport.
Sorry for the long response, but this is a much more complicated issue than people realise and I happen to know way too much of it :)
TLDR: Airlines group seats together and assign different prices to them. Cheaper seats are fewer in number, so they go out of stock more easily. The airlines will also adjust these prices at the last minute based on how well the sales are doing. So when you check the prices for the same flight during the same day, you might see expensive (no cheap seats left), then super cheap (someone cancelled their reservation with a cheap seat), and then as the takeoff time approaches something even lower (there are a lot of empty seats left) or higher (very few seats remaining).
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Nov 22 '12
Thanks for the nice response. As a question related to what everyone seems to warn, does the site take into account your recent cookies and alter your price relative to those?
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u/Xasf Nov 22 '12
Thanks! My company serves around 40 different airlines around the world and I have yet to encounter the dreaded "evil cookies increase your ticket prices" myth. We do datamine the shit out of you, of course, but that data usually goes into analytics to be used in the future and does not affect your prices in real time.
That being said we don't have any clients in US (they don't tend to work with European companies), so I can't speak for the situation over there for certain.
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u/ThisIsNotMyRealLogin Nov 22 '12
Very interesting, thanks. Any inputs on what kind of data is mined ?
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u/Xasf Nov 22 '12
Honestly anything we can get our hands on. Most common are your contact information, country of your citizenship, your age, gender, seat preferences, meal preferences, other people travelling with you on the same PNR (booking). And your travel routes, of course :) We will also try to match your past flights based on your personal info.
And if you are a registered FFP (frequent flyer program) member, oh boy it's Christmas!1
Nov 22 '12
Ah thank you for clearing that up! I'm sure every industry has to have their own little myth or two.
I understand that with the way the information network is operating that data mining is a highly common practice; in the end though it can also benefit the consumer so I am not too fussed.
Well I am in Europe so your information is highly beneficial to me, thanks again :)
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u/Xasf Nov 23 '12
Sure thing :) Yep like almost everything data mining can be used for both good and evil, when done right it's win-win for everyone plain and simple.
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u/Samuraisheep Nov 22 '12
So is it actually possible to find a cheap flight, or is it just luck as to when you decide to book? I have no idea how far ahead I can book in advance/ when prices are released.
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u/ich_liebe_berlin Nov 22 '12
Most airlines release their fares roughly 330 days prior to departure.
Say you're booking economy tickets and the plane has 200 seats in economy. They will divide those 200 seats up into different classes starting with different letters. For the purpose of making it easy, lets say they put 30 seats into Q class, 70 seats into Y class and 100 into V class. [In reality, there's a lot more classes than that, but let's ignore that for now]
Those 30 seats in Q class will be the cheapest so obviously they will sell the fastest, the 70 seats in Y class are a pretty average price, but not too expensive, so they will generally sell out more than 3 months prior to departure. The rest of the seats in V class will be sold at a higher price because the travel date is closer. The quicker you get in, the quicker you'll be able to get those limited amount of Q class fares :]
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u/Xasf Nov 22 '12
Yep this is basically true, the advance sales time (called "system range") is usually 330 days and very rarely exceeds 360. And the rule of the thumb is get your ticket as early as possible, however beware those cheapest tickets if your travel plans are not certain. You won't get anything back (except taxes) if you try to cancel/change those later on. Try to pay a little extra for a flexible ticket if you are booking like 10 months into the future, you can always keep an eye on your flight and grab a cheaper one once your plans are set, and will get the difference paid back to you (although this depends on the airline, so buyer beware).
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u/lebenohnestaedte Nov 22 '12
Most airlines release their fares roughly 330 days prior to departure.
I hate this fact. Then you have to book your "fake return flight" and then pay to change it because you're staying longer than that. Blaaaah. I already knew I wasn't planning on coming home in March; I didn't want that ticket anyway! Can't I just change it for free (or only pay the ticket price different), please?
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u/ich_liebe_berlin Nov 22 '12
It gets pretty frustrating. A lot of people are already booking their Christmas holidays for next year and it makes it almost impossible to get a return date. Last year Emirates had one free date change (you just pay the difference in fare + taxes) to counteract it but they're not doing it this year which is annoying.
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u/altof Nov 22 '12
Is there any website that could display the data for X amount of passengers from city A to city B at any time from the past according to airlines so that I could guess when the best time (months in advance or at the last minute) to get a good ticket?
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u/Xasf Nov 22 '12
None freely accessible to the public that I know of. You can check http://www.amadeus.net for current prices across all airlines though. Amadeus is the top dog in airline software industry with connections to hundreds of airlines, and their site will show you alternatives you might not find anywhere else.
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u/NyQuil012 Nov 22 '12
Here's a question: not long ago I was booking a flight for myself and my wife through the website of a major airline, about a week before the flight. I noticed that if I only booked one ticket, the price was $248, but if I booked two, the price was over $600. When I called the airline, they told me there must be only one ticket in that fare class, but the website said there were 6 and I easily booked two individual tickets at the $248 price. So was the airline simply trying to scam me and make me pay over $100 extra simply for the convenience of booking two tickets on one itinerary? How does it work in the airline's favor to make it less convenient to book more tickets? Is this part of the website or a ridiculous airline policy?
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u/Xasf Nov 22 '12
I would say that this is a typical case of a travel agent trying to screw you, but you said that the booking was directly through the airline website? Sounds like either a mistake in their dynamic pricing settings, or the airline trying to be sneaky (and failing miserably).
Well done on cross-checking the prices though, always a smart idea when buying a ticket.
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Nov 22 '12 edited Sep 28 '18
[removed] — view removed comment
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u/Chimie45 Nov 22 '12
I fly international tran-pacific a lot. For that, Round-trip is very cheap compared to one-way. A ticket from Asia to the US one-way is going to be about $1000. A ticket round trip is $1200. The one-way will have three layovers and be on shitty jets. The round-trip will be non-stop with full everything on a 777.
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Nov 22 '12
Hi Chimie45, First of all, happy cake day! Secondly, I am going to buy a roundtrip ticket from SFO to BKK sometime this February or March, was wondering if you had any advice to get the cheapest fare possible.
Thanks!
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u/Chimie45 Nov 22 '12
Depends on what you're looking for. Any additional information? How long will you be there? What days/times are you willing to leave? How many stops are you willing to have? Overnight Layovers?
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Nov 22 '12
Staying for 2-3 weeks, no other preferences really just as cheap as possible. Overnight and/or multiple layovers would be fine if it made a significant difference in the cost of the ticket. For $50 cheaper I wouldn't do it but for $400 I might... I am hoping to get a ticket for around $900 but current cheapest price I see is around $1200 as you described. Just wondering what the cheapest you ever saw was and how I might be able to make that happen.
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u/lebenohnestaedte Nov 22 '12
This is because most countries are happy to let you visit but they don't want you to stay. If you have a return ticket, they see that you plan to leave, and they are happy to let you in. If you have a one way ticket and nothing to can show them to demonstrate you will leave again (such as another ticket from their country to another one), they won't let you in to their country. Then your airline has to fly you home. That's expensive and they don't want to do that, so they make one-way tickets extra expensive.
That's what a travel agent told me once, anyway.
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u/Idem22 Nov 22 '12
Mostly, although the price can drop at a later date even without a sale. Prices are set based on history, but never guaranteed either way.
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u/Tritorius Nov 22 '12
Prices work on fluctuating demand. Believe it not or, a lot of the prices are made up to start with, and then you monitor from there to see how it's going. Selling tickets at $159 too fast, bump it up to $179, selling too slow, drop it to $169.
Not selling anything at all, drop them to $99 but put the flights on dates either side at $159 and suddenly they seem more attractive.
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Nov 22 '12
Also, picked this one up on reddit. Airlines will use their browser cookies to raise prices based on the number of times you visit to check for lower prices.
http://www.budgettravel.com/blog/fares-watch-out-for-slippery-airline-websites,9793/
Not sure if there is any truth to this, as I don't often travel by plane. But it is something to keep in mind.
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Nov 22 '12
Why would they raise the price if you checked more than once? Surely if you didn't buy them because they were too expensive the first time, you'll be even less likely to buy when you're offered a higher price?
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Nov 22 '12
Perhaps also don't log in with your frequent flyer number until you're ready to buy. Purging cookies won't help. Once they can track you, they will.
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Nov 22 '12
You could use private browsing or a cookie blocker. But not logging into an account would also help.
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u/usaar33 Nov 22 '12
I'm confused how this would work. If you use a flight aggregator (kayak, skyscanner, whatever), you see prices based on what the airline reports them as. This in no way can factor in your browser cookie (the airline isn't going to see it) - and the aggregator would look really bad if the price wasn't correct.
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Nov 22 '12
I really can't answer that. I was only passing along what I had previously seen either here or on r/frugal.
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Nov 22 '12
Each ticket has its own set of rules. Like what you can do with the ticket. Change dates. Refund. Etc. the more expensive the ticket the more flexible the ticket usually is.
Say an airline has 100 seats to sell 10 seats will be at their cheapest, the next 10 will be a little bit more but will be cheaper to change dates or will give you more money back if you cancel etc.
So the more tickets that get booked on a flight the more the price goes up, as people will usually want to get the cheapest available.
Then there are fuel surcharges. If fuel costs more the price goes up on the available tickets so they don't loose out on using that fuel now for tickets that were sold when the fuel price wasn't so high. If the price goes down the current price will go down again too.
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u/Syke042 Nov 22 '12 edited Nov 22 '12
Prices don't actually fluctuate as much as you might think. It's the availability of the type of ticket that changes. The differences in types of tickets aren't usually explained to customers because, frankly, they don't care. They just want the 'cheapeset'. Travel agents, confusingly, refer to these ticket types as 'classes' of tickets, even tho they are all in the same class (economy/business/etc)
A rather contrived example might be: You go look up a flight, online, from LA to London.
You find a LA->New York->London.
It's a ticket with American Airlines purchased through an online travel agency called Bucket Prices.
The LA->New York on American Airlines is $300 in economy class which is $200 non-refundable. Then an economy class ticket from New York-> London for $520 which is 100% non-refundable. Bucket Prices charges their approx. 6% commission which brings it up to 870$
You think you might be able to do better, so you head to a travel agency downtown called Shop'n'Fly.
They find the exact same flight, also with American Airlines. Except this travel agent has a different contract. They can get you the same price LA->New York, but because of their contacts with American Airlines, they don't have access to the 100% non-refundable tickets for $520. They can only sell the $250 non-refundable tickets, which are $650. They charge 2% commission and so their price is $969. Exact same flights. Exact same class of service. Different class of tickets, so different prices.
Well, crap. It was cheaper online. So you go back there.
Except, for that day the 100% non-refundable tickets are now sold out -- there were only 20 available with those conditions.. So, now the only available tickets (For exactly the same flight, remember. Same plane, still in economy class, just different conditions) is $1145 because the only type of economy class ticket available is more expensive.
Of course the Shop'n'Fly downtown now has the cheaper flight because the contract they (or, more likely, their wholesalers) have worked out with American Airlines give them access to the (now) cheaper class of ticket.
Three prices, all for the same flight, all in the course of one day.
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Nov 22 '12
[deleted]
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u/MuseofRose Nov 22 '12
Also "winter" months January, February, maybe March can be good buys because of all the negatives during those time of the months.
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Nov 22 '12
LPT: clean your cache/cookies when shopping for airfares. Websites track if you've recently visited (say, in the past couple days) and will adjust prices accordingly. Why? Cause they ****ing can. Don't get caught with your pants down.
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u/Helix_van_Boron Nov 22 '12
Chrome Incognito: It's not just for porn. (Okay, so it's pretty much just for porn.)
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Nov 22 '12 edited Nov 22 '12
I use chrome incognito for ahem, some things, but I never thought to look for airline prices on there. I know you didn't mean this as a suggestion, but I'll totally try looking on there now to see if it makes a difference. Thanks!
Edit: iPad, dammit.
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u/sturmeh Nov 22 '12
Because consumer logic is hard to determine so whilst supply is fixed, demand fluctuates, along with the price!
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Nov 22 '12
One time I was trying to buy a ticket, which started out as £150 but I was on my phone and the browser kept crashing. I ended up doing this about 10 times before I got to a computer. Almost every time I re-tried getting a ticket the price would go up. So I guess it's linked to demand.
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u/NyQuil012 Nov 22 '12
I honestly think it's a case of "because we can, and what else are you going to do, take Amtrak?" Airlines seem to have so many arbitrary fees and regulations simply to screw their customers out of as many pennies as they can. I really wish we had a legitimate alternative like a bullet train system in this country.
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u/hippiechan Nov 22 '12
It's all about supply and demand.
Most people like to fly in the middle of the day, because it's convenient and they don't have to wait around all day to get on a plane or wake up super early either. Airlines know this, and know that more people will want to fly during these hours than any other. This is demand, and when it is high, airlines know that if they charge a higher price during this time, they will make more money.
This has two benefits: first, airlines make a lot of money in the middle of the day because a lot of people want to fly then. Second, it means that people that aren't willing to pay as much for tickets will fly earlier or later, sacrificing convenience for cost. This benefits both the airlines and the passengers, as passengers will fly at a lower rate and airlines can make more flights and make an eve bigger profit.
Essentially, raising the price of a ticket at a time of the day with a lot of demand maximizes profits during that period, and pushes excess demand to different parts of the day to maximize profits during those periods.
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u/alanwj Nov 22 '12
You make and sell widgets. They are really cheap for you to make so we won't consider your costs for this example.
Fred is willing to pay $6 for a widget, and Wilma is willing to pay $10, and Shaggy is willing to pay $12.
What should you set your price at? If you sell at $6, all three will buy from you and your gross income will be $18. If you sell at $10, Wilma and Shaggy will buy from you and your gross will be $20. If you sell at $12, only Shaggy will buy from you and your gross will be $12.
Clearly you should set your price at $10, right? If this was the only way you could set prices, then the answer would be yes. But what if you came up with some clever way of charging different prices for each person. If you could charge everybody the most they would be willing to pay, then you could make $28 instead.
This is called "capturing the consumer surplus". You see this in lots of places, with things like senior citizen or child discounts (groups that would often just rather pass up something than pay full price), or with region codes on DVDs. Any time you have a chance to divide up your market you have an opportunity to capture consumer surplus.
Airlines have made this into an art, deciding how much somebody is probably willing to pay based on all sorts of signals like where they are going, whether it is round trip, how many stops there are, how far in advance they are looking for a ticket, when they are flying, etc, etc. It would not be surprising to learn that every person on a flight paid a different price.
TL;DR - They are making a guess at the most you'd be willing to pay based on the information they have about you.