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What is the reason that when you book a flight between 2 destinations from an airline website (aircanada.com), the prices are much more than when you book the same through a discount website like cheapoair.com?

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up vote 11 down vote accepted

Market segmentation?

The people who shop on budget travel websites are, by definition, very price senstitive. They will take the cheapest flight. So you can offer them a cheap price and make a sale (and a little bit of profit). If you know someone is much less price sensitive, and willing to pay more, they charge more.

The people with a lot of money and who aren't willing to shop around and adjust their plans a lot are the most profitable to the airlines. Business class travllers are the main people like this. The company is paying for it, not them, so they don't care as much, and the company has a lot of money (a transatlantic flight costs the company about a few days salary for that employee).

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Airlines are able to do this as they have separate 'stocks' of passenger reservations set aside each for direct sales, travel agents, discount websites etc. It's a bit like Groupon, really. If a certain sales outlet can attract a reasonable amount of sales albeit at a lower price, that increases the occupancy on their flights. –  Ankur Banerjee Aug 24 '11 at 10:26
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@Ankur, I don't think they actually need separate stocks, since the price quotes and purchases are live. They can offer the same seat for two different prices. When it gets sold in either place, it's no longer available at either place (of course, their might be other seats). –  Matthew Flaschen Aug 11 '12 at 20:28
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I've worked in the travel industry for 4+ years, and heard this same question from customers a number of times. There are a number of reasons why prices on travel websites are different from airline websites:

  1. Bulk Buying - They negotiate with different carriers and promise to sell a certain number of seats on their behalf, because of which they are able to get better rates from the airline. They pass on some of these savings to customers, and make a low margin themselves. In addition, airlines offer incentives (like free tickets) if they meet certain ticket sales goals.
  2. Connecting Flights & Combinations - Usually, when shopping on a discounted travel website, you might find a lot of airline combinations especially for hopping flights. But, when you put the same start city and destination on the airline's website, it might not show that combination of flights at all. The reason why you can find the travel websites' combination to be cheaper is that they might give you a combination of flights by two different airlines, which might not even be connecting flights. They negotiate best rates with both the airlines and then sell the two separate tickets together. Hence, one has to be very careful at times while booking, taking into consideration that if both the flights are not connected and if the first flight gets delayed, then it is not the airlines responsibility to put you on another connecting flight to reach your final destination as those flights were not connected at all. In most cases, the website operator will not help you out either. This is another reason they can offer cheaper tickets. If you buy a ticket from the airline website with connecting flights, they are responsible for getting you to your final destination, even when you miss a connecting flight due to delays.
  3. Different cancellation policies - Travel websites have different change and cancellation policies. In most cases, canceling or changing a ticket bought on a travel website is far more expensive than when you buy the ticket from the airline website. Travel websites offer customers low rates upfront and make it up by heavily charging for cancellations and changes; they do plenty of statistical analysis to determine optimal numbers.
  4. Price Segmentation - As for airline website, they always have promotions and frequent flyer sales going on. Typically, people who are not price conscious ( business class, first class passengers) will tend to book from the airlines website as it is direct and they don't have time to shop around. The rates are higher keeping in mind the type of clientele they get and they know that this crowd is elite. Also, some passengers are not very comfortable buying tickets on a cheaper site as there could be complications because these discounted websites finally ticket from the main airline office. Hence, they prefer buying tickets directly from the airline site.

Airlines' top priority is keeping their flights full. Hence, they have to negotiate with these sites to offer better services and stay in business. It is mutual and they know that the most people who visit their website are the coach or economy crowd, who will always book through the website where they get the best rates. You might also have observed a difference in cost on two different discounted travel websites as one of them might have given a better business to that airline and hence, could negotiate for better rates with them.

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The main point of difference in prices is the set of services you are buying on sites.
First of all, are you sure that this is completely the same?

  1. Are the cheaper tickets available to refund?
  2. Are luggage volume for the transportation for free the same?
  3. Are there any changes inside the itinerary? Or flights are direct?
  4. Are the flights in the same time span? Or cheaper ones are at night?
  5. Are the cheaper flights "on fire" (sometimes air-travel companies recieve some refunds for the tickets and try to sell some places at the last time)?

There are many options you didn't say about. Air-travel is big business, and there is no way some companies will differ they prices without reason.

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