85

Based on the question How to find historical airfares?, I got curious. Is there a guide or resource that describes how the price of a ticket is determined?

When you search you often see curious effects like cheaper tickets for a flight from A to B with a layover compared to a direct flight. This seems counter-intuitive from an outsider's perspective since you fly twice. Also one way tickets more expensive than 2 ways.

It can be a short set of rules. Something that helps someone to get started with finding good prices. I know these can be very complex and they probably change over time and over airline interests but there is probably a simplified set of rules that can be enunciated.

  • 6
    There's a good presentation on air fare pricing complexity available on the ITA Matrix website, does that cover you? – Gagravarr Jun 16 '15 at 15:11
  • 5
    I doubt something so complex can be reduced to a short rule set. There's seasonality, different practice by airline, different regulations, geopolitics, sales tricks by websites etc on top of regular offer/demand economics in a very competitive market – blackbird Jun 16 '15 at 15:16
  • 1
    Do you read 'Commercial and Business Aviation magazine'? "General Aviation News magazine"? "Business Aviation Advisor magazine"? Read company reports? – Gayot Fow Jun 16 '15 at 15:16
  • 2
    I think the question is not very good. Why it's complicated to find the cheapest fare or price a particular route has already been explained on this site. Some of the most important “tricks” like hidden-city routing also have been. Finally, how airlines set their fares is an entirely different question. And if there were a canonical set of simple rules to find cheaper airfares, it would be well known. But it's not and asking about it does not make for a very good question. – Relaxed Jun 17 '15 at 11:42
  • 1
    I work for a travel firm, we communicate with flight systems to get prices, etc. There is no one answer to this question, the price is determined based on many many factors, who you bought it from, the yielding of the fare, the fare type (cat35, ITX, etc.), the airline, special offers, etc. There are whole computer systems dedicated to working this complexity out (ITA, Galileo, etc.), it is virtually impossible for a human to understand. – Liam Jun 18 '15 at 15:03
118

To calculate the price of a ticket, we first need to know a little about how air pricing works.

A ticket is a single, complete contract for one journey. It can contain up to a maximum sixteen flights.

Each flight on the ticket must be paid for ("covered") by exactly one fare. A fare is a price that the airline offers on a city-pair, for example, London-New York, together with a complicated set of rules on how the fare may be used (i.e., the fare rules determine under what conditions that price is valid). Although every flight gets covered by exactly one fare, a single fare could cover multiple flights: For example, a London-New York fare issued by Air France would probably cover London-Paris, and Paris-New York. If you were going as far as Rochester in upstate New York, then the fare would cover London-Paris, Paris-New York, and New York-Rochester, (with the final flight operated by Delta Airlines, but still covered by your Air France fare).

Every carrier publishes a fare tariff, which is just a public list of fares. For example, let us say I want to know what the fare tariff for HKG-SYD [Hong Kong to Sydney] is as sold by QF [Qantas]. This information is distributed to travel agents via a system called the "GDS" (global distribution system).

The validity of the tariff varies by sales city, and may change several times a day; although in practise certain fares tend to stay on the tariff for many years with only small changes to their price. The system is not designed to handle changes to the fare tariff more frequently than about once per hour. If my travel agent is located in London and intends to complete ticketing today, the current tariff on HKGSYD published by QF is

Fare Basis  Airline  Booking  Trip Type   Fare           Cabin  Effective  Expiration  Min/Max  Advanced
                     Class                                      Date       Date        Stay     Purchase Req
S50HK3      QF       S        Round-Trip  414.00 (GBP)   E      10/05/15   02/02/16    -- / 3M  50
                                                                11/02/16   30/06/16
                                                                11/08/16   22/01/17
                                                                01/02/17   31/03/17
SSHK3       QF       S        Round-Trip  464.00 (GBP)   E      24/03/15   28/01/16    -- / 3M  
                                                                01/04/15   02/02/16
                                                                11/02/16   31/03/16
                                                                11/08/16   22/01/17
                                                                01/02/17   31/03/17
LSHK6       QF       L        Round-Trip  531.00 (GBP)   E      24/03/15   31/03/16    -- / 6M  
                                                                01/04/15   31/03/17
MSHK        QF       M        Round-Trip  614.00 (GBP)   E      24/03/15   31/03/16    -- / 12M 
                                                                01/04/15   31/03/17
KSHK        QF       K        Round-Trip  713.00 (GBP)   E      24/03/15   31/03/16    -- / 12M 
                                                                01/04/15   31/03/17
HF1HK       QF       H        Round-Trip  834.00 (GBP)   E      24/03/15   31/03/16    -- / 12M 
                                                                01/04/15   31/03/17
BF1HK       QF       B        Round-Trip  977.00 (GBP)   E      24/03/15   31/03/16    -- / 12M 
                                                                01/04/15   31/03/17
YF1HK       QF       Y        Round-Trip  1194.00 (GBP)  E      24/03/15   31/03/16    -- / 12M 
                                                                01/04/15   31/03/17
WSHK        QF       W        Round-Trip  1252.00 (GBP)  E      24/03/15   31/03/16    -- / 12M 
                                                                01/04/15   31/03/17
YRT         QF       Y        Round-Trip  1676.00 (GBP)  E                             -- / 12M 
I50HK1      QF       I        Round-Trip  1724.00 (GBP)  B      21/03/15   31/03/16    -- / 12M 50
I21HK1      QF       I        Round-Trip  1909.00 (GBP)  B      21/03/15   31/03/16    -- / 12M 21
ISHK        QF       I        Round-Trip  2169.00 (GBP)  B      21/03/15   31/03/16    -- / 12M 
YIF         YY       Y        Round-Trip  2231.00 (GBP)  E                                      
D14HK1      QF       D        Round-Trip  2472.00 (GBP)  B      21/03/15   31/03/16    -- / 12M 14
DSHK1       QF       D        Round-Trip  2803.00 (GBP)  B      21/03/15   31/03/16    -- / 12M 
CFHK1       QF       C        Round-Trip  3178.00 (GBP)  B      21/03/15   31/03/16    -- / 12M 
JFHK1       QF       J        Round-Trip  3633.00 (GBP)  B      21/03/15   31/03/16    -- / 12M 
JRT         QF       J        Round-Trip  3740.00 (GBP)  B                             -- / 12M

(I filtered out non-roundtrip fares.)

You can see there is a long price list. Each fare will have a set of rules in how it can be used, such as—

  • whether the fare can be used to make one-way journeys, round trips, circle trips, round-the-world journeys, or other types of journeys;
  • whether you must stay at the destination city for a minimum or maximum period of time;
  • which days of the week and hours of the day travel can occur on;
  • whether the fare is only valid at certain times of the year or even only on specific dates;
  • whether you are allowed stopovers at connecting cities on the fare;
  • whether you must buy the fare in advance of travel, and how far in advance;
  • whether ticketing must be completed by a certain date (in a sale fare for example);
  • how long you are allowed to hold reservations on flights under this fare before paying for the ticket;
  • which flights the fare is valid on, and this may or may not include flights offered by other carriers;
  • whether and how many transfers are allowed (in the case of indirect flights);
  • whether the ticket can be changed or refunded later, and if so what penalties apply under what conditions;
  • whether the fare can be combined with other fares and how those combinations can come together (and that could include fares issued by other carriers);
  • whether unaccompanied minors are allowed, and if so whether a penalty applies;
  • whether infants, children or seniors are eligible for a discount;
  • whether this is a companion fare requiring several people to travel at the same time in the same party;
  • who is permitted to issue tickets under the fare (some fares can only be issued by the airline and not by travel agents);
  • whether the fare can be "printed" onto another carrier's ticket "paper", and the other carrier is therefore trusted to collect payment (even though we now use electronic ticketing, it is a direct implementation of the old analogue concept of paper tickets);
  • whether a ticket with the fare can be "endorsed" onto another carrier offering service on the same route (very rare these days);
  • and many other conditions ...

As you can see, there are a lot of restrictions and rules possible! By creating these rules very carefully, the carriers intend to keep the price as high as possible but also sell tickets to as many people as possible. For instance, tickets intended to be sold to tourists at low prices will often have to be purchased a few weeks in advance. A consultant who buys his tickets with 2 hours notice will pay a large price for his indecision. It is the flexibility of these rules that make pricing an air ticket a very difficult problem to solve.

To give you a flavour, I will post a subset of the rules from the cheapest fare here. I cannot post the full rules from the fare because it would make my answer far too long! This is QF HKGSYD S50HK3

Rule Category                           Rule Text

RULE APPLICATION AND OTHER CONDITIONS      NOTE - THE FOLLOWING TEXT IS INFORMATIONAL AND NOT
                                           VALIDATED FOR AUTOPRICING.
                                           50 DAYS ADVANCE PURCHASE SAVER EXCURSION ECONOMY CLASS
                                           FARES
                                           FROM HONG KONG TO AUSTRALIA NEW ZEALAND FIJI NEW
                                           CALEDONIA
                                           APPLICATION
                                            AREA
                                             THESE FARES APPLY
                                              FROM HONG KONG SAR CHINA
                                              TO AUSTRALIA/NEW ZEALAND/FIJI/NEW CALEDONIA/
                                              SOLOMON ISLANDS.
                                            CLASS OF SERVICE
                                             THESE FARES APPLY FOR ECONOMY CLASS SERVICE.
                                            TYPES OF TRANSPORTATION
                                             FARES GOVERNED BY THIS RULE CAN BE USED TO CREATE
                                              ROUND-TRIP/CIRCLE-TRIP/OPEN-JAW/SINGLE OPEN-JAW/
                                              ORIGIN SINGLE OPEN-JAW /TURNAROUND SINGLE
                                              OPEN-JAW/DOUBLE OPEN-JAW JOURNEYS.
                                            CAPACITY LIMITATIONS
                                             THE CARRIER SHALL LIMIT THE NUMBER OF PASSENGERS
                                              CARRIED ON ANY ONE FLIGHT AT FARES GOVERNED BY
                                              THIS RULE AND SUCH FARES WILL NOT NECESSARILY BE
                                              AVAILABLE ON ALL FLIGHTS. THE NUMBER OF SEATS,
                                              WHICH THE CARRIER SHALL MAKE AVAILABLE ON A GIVEN
                                              FLIGHT, WILL BE DETERMINED BY THE CARRIERS BEST
                                              JUDGEMENT.
                                            OTHER CONDITIONS
                                             FARES ONLY APPLY IF PURCHASED BEFORE DEPARTURE
                                             EXCEPT WHEN USED FOR ENROUTE UPGRADE FROM ANOTHER
                                             FARE PROVIDED ALL CONDITIONS OF THESE FARES ARE
                                             MET OR FOR ASSESSING THE REFUND OF A PARTIALLY
                                             TRAVELLED TICKET.
                                             ---
                                             THE OPERATING SCHEDULES OF PARTICIPATING CARRIERS
                                             MAY BE SUBJECT TO CHANGE WITHOUT NOTICE. SERVICES
                                             TO SOME DESTINATIONS MAY BE OPERATED ON A SEASONAL
                                             BASIS.
                                             ---
                                             THE FARES ARE ROUTE BASED ACCORDING TO SPECIFIED
                                             ROUTE MAPS.
                                             ---
                                             THE PAYMENT OF PASSENGER EXPENSES ENROUTE DOES NOT
                                             APPLY.

ELIGIBILITY                                NO ELIGIBILITY REQUIREMENTS APPLY.

DAY/TIME                                   NO DAY/TIME TRAVEL RESTRICTIONS APPLY.

SEASONALITY                                PERMITTED 10MAY15 THROUGH 02FEB16 OR 11FEB16 THROUGH
                                           30JUN16 OR 11AUG16 THROUGH 22JAN17 OR 01FEB17 THROUGH
                                           31MAR17 ON THE FIRST INTERNATIONAL SECTOR. SEASON IS
                                           BASED ON DATE OF ORIGIN.
                                                 NOTE - TEXT BELOW NOT VALIDATED FOR AUTOPRICING.
                                                  FOR OJ JOURNEYS - AS IT IS THE DATE ON THE
                                                  OUTBOUND INTERNATIONAL SECTOR THAT DETERMINES THE
                                                  SEASONAL PERIOD FOR EACH HALF OF THE JOURNEY THE
                                                  RESULT MAY BE THAT DIFFERENT SEASONS APPLY
                                                  OUTBOUND AND INBOUND WHEN FARES WITH DIFFERENT
                                                  SEASONALITY ARE COMBINED.

FLIGHT APPLICATION                         THE FARE COMPONENT MUST NOT BE ON
                                               ONE OR MORE OF THE FOLLOWING
                                                   QF FLIGHTS 200 THROUGH 299
                                                   QF FLIGHTS 315 THROUGH 318
                                                   QF FLIGHTS 5000 THROUGH 5400
                                                   QF FLIGHTS 5402 THROUGH 5999
                                                   QF FLIGHTS 8000 THROUGH 8765
                                                   QF FLIGHTS 8767 THROUGH 8999.
                                           AND
                                           THE FARE COMPONENT MUST BE ON
                                               ONE OR MORE OF THE FOLLOWING
                                                   ANY QF FLIGHT
                                                   ANY CX FLIGHT OPERATED BY CX
                                                   ANY IE FLIGHT OPERATED BY IE
                                                   ANY 3K FLIGHT OPERATED BY 3K.
                                                 NOTE - TEXT BELOW NOT VALIDATED FOR AUTOPRICING.
                                                  PERMITTED CARRIERS/ROUTING AS PER ROUTE MAP.

ADVANCE RESERVATIONS/TICKETING             CONFIRMED RESERVATIONS FOR ALL SECTORS ARE REQUIRED AT
                                           LEAST 50 DAYS BEFORE DEPARTURE.
                                           WAITLIST NOT PERMITTED.
                                           TICKETING MUST BE COMPLETED WITHIN 3 DAYS AFTER
                                           RESERVATIONS ARE MADE OR AT LEAST 50 DAYS BEFORE
                                           DEPARTURE WHICHEVER IS EARLIER.

MINIMUM STAY                               NO MINIMUM STAY REQUIREMENTS APPLY.

MAXIMUM STAY                               TRAVEL FROM LAST STOPOVER MUST COMMENCE NO LATER THAN
                                           3 MONTHS AFTER DEPARTURE FROM FARE ORIGIN.

STOPOVERS                                  2 STOPOVERS PERMITTED IN EACH DIRECTION
                                             LIMITED TO 1 FREE AND 1 AT HKD 500.
                                                 NOTE - TEXT BELOW NOT VALIDATED FOR AUTOPRICING.
                                                  INFANT DISCOUNTS - APPLY - INFANT PAYS 10 PERCENT
                                                  OF THE ADULT FEES.
                                                  CHILD DISCOUNTS - DO NOT APPLY PAY FULL ADULT FEE.
                                                  ---
                                                  STOPOVERS PERMITTED ONLY AT TRANSFER POINTS SHOWN
                                                  ON THE ROUTE MAP.

TRANSFERS                                  UNLIMITED TRANSFERS PERMITTED ON THE PRICING UNIT.
                                           FARE BREAK AND EMBEDDED SURFACE SECTORS PERMITTED ON
                                           THE FARE COMPONENT.
                                                 NOTE - TEXT BELOW NOT VALIDATED FOR AUTOPRICING.
                                                  AS PER ROUTE MAP.

...

For more information, try building a route using http://matrix.itasoftware.com, and inspecting the rules of the fares it suggests at the end of the process.

Right, so you have a fare, now you need some flights to apply it to.

First, better check the fare's routing map, to see what routes the fare actually allows.

    V FARE BASIS     BK    FARE   TRAVEL-TICKET AP  MINMAX  RTG
  1   S50HK3         S R   644.00     ----     50/3  -/ 3M EH01
PASSENGER TYPE-ADT                 AUTO PRICE-YES              
FROM-HKG TO-SYD    CXR-QF    TVL-23JUN15  RULE-7380 IPRPG/8
FARE BASIS-S50HK3            SPECIAL FARE  DIS-E   VENDOR-ATP
FARE TYPE-XEX      RT-REGULAR EXCURSION
HKD     4990  7180  E24MAR15 D-INFINITY   FC-S50HK3  FN-     
SYSTEM DATES - CREATED 23MAR15/0016  EXPIRES INFINITY

PUBLISHED RTG HKG-SYD/QF7180/TAR-TGRG    EF-24MAR15 DIS-INDEF

/WITHIN THE EASTERN HEMISPHERE/
MAP CONSTRUCTED LEFT TO RIGHT AND RIGHT TO LEFT
 1. HKG-SYD
.

Great, so this fare will only cover us travelling directly between HKG and SYD (route number 1) on either QF, CX, IE, or 3K (those four carriers were listed as allowed in the fare rules). If we wanted to go via MEL we would need to get another fare, or maybe a combination of two fares. Some fares give a mileage restriction instead of a route map (so you can use it on any combination of flights [unless restricted by the rules] but only up to a total mileage).

Next we need to have a look at QF flights between HKG and SYD, remembering every flight must satisfy the conditions of the rules given above. (I am going to ignore the possibility we could use this fare to cover CX/IE/3K for brevity.)

The airline helpfully publishes a list of flights onto the GDS together with the number of seats it is presently willing to sell on the flight organized by "bucket" or "booking code".

This is called the "availability". It can differ by sales city again, so a travel agent in NYC might be able to offer you a better price than a travel agent in LON, even for exactly the same journey. Most airlines do not distinguish on point of sale like this, but some do. Legal restrictions apply to this practise within the EU (see Regulation EC 1008/2008).

Anyway, looking on the 1st October, from London, on QF flights between HKG-SYD, there is just one and the availability is:

                                                                     Frequency
Flight        Stops  Depart             Arrive             Aircraft  Reliability     Available Classes
0 Connections
QF 128        0      HKG                SYD                744       Unavailable     J9 C9 D9 I0 W9 R0 T0 Y5 B0 H0 K0 M0 L0 VC SC NC QC OC XC E0 
                     01/10/15 20:15     02/10/15 7:20                75% / 54m

The key part is that last block:

  J9 C9 D9 I0 W9 R0 T0 Y5 B0 H0 K0 M0 L0 VC SC NC QC OC XC E0

It tells you that if your fare allows you to book into "J" class, you can reserve 9 seats on this specific flight. There might be more than 9 seats available, the maximum it will display is 9. If your fare lets you book into Y class, you can buy 5 seats in one transaction. If your party is of six people, you will need to pick another fare for the sixth person. (Some booking sites would put everyone in the higher class, at a higher cost for all.) If your fare allows you only to book into M class, alas that has zero seats. If you want a "confirmed reservation" right now, you are out of luck.

The letters J, C, D, and I represent business class; W, R, T is premium economy and the rest are economy. The letter at the left is the "most available" (and the fares allowing it are the most expensive), gradually getting cheaper but more restricted as we read towards the right. Actually each airline can use their own set of letters, but it is normal that the most-available ("full fare") business class is J or C, full fare economy is Y and full fare first is F or P.

Now I should emphasise, the numbers there can change by the second. It is not quite "how many seats are left". It is an active estimate by the airline of how high they can set the price. Of course, when a seat is bought, it is likely that the availability will decrease. But if demand is unexpectedly weak, it might make sense for the airline to keep the availability open. On the other hand if it is announced that the World Cup is going to be set in Sydney next year, it makes sense to tighten up the availability now and therefore raise the price.

For the airline it is a big problem that a typical purchaser will put hundreds, thousands or probably millions of availability requests through before he purchases a single flight. This has become an intolerable load on the airlines, and therefore the availability information tends to be cached at many levels between the airline and your screen. It can therefore be out of date very quickly.

To make life even more difficult, the airlines often like "to marry" segments together, so that the availability on one flight depends on what other flights you propose to take in conjunction with it! Basically, if the airline discovers that you want to take a small but popular flight as part of a big and profitable journey, they can be more liberal in opening up the "cheap seats" for you.

Turning back to our ticket buying: when the availability says 0 you may still put in a "request" to be added to the waitlist. The airline will decide whether to confirm your reservation at its discretion in its own time. If the reservation is confirmed, you may pay for the ticket at this point. Whether the fare permits waitlisting will be written in the rules. [This dirt cheap fare "S50HK3" we are looking at does not allow waitlisting.]

If the fare you intend to use to cover this part of the journey only allows you to sit in S class, then alas that fare bucket (or "booking code") has been closed ("C") to waitlisting: you cannot even ask nicely for a seat.

So which booking code are we allowed to use under our fare? The fare is called "S50HK3" so normally that would be the S booking code. In most cases the first letter of the fare name decides the booking code. However, there can be exceptions for specific flights [most obvious example: if you had a first class fare but not all planes have first class], and to be sure we need to check the Booking Codes table attached to the fare.

>$LB1                                                          
001 HKGSYD 01OCT15 QF GBP  414.00 S50HK3   STAY---/3M BK-S     
FARE CLS  EXPLANATION                            BOOK CODES    
--------  ----------------------                 ----------    
S50HK3    REGULAR EXCURSION FARES                   S          
S50HK3    WITHIN AREA 3 FOR ROUND TRIP FARES                   

NO BOOKING CODE EXCEPTIONS FOR CARRIER - USE PRIME   

Okay so we should use the S code. Alas! The S bucket is closed. So now we go back to the beginning and pick the next cheapest fare on the list.

Once we have done this we will need to repeat the process with the return trip. And then we need to ensure the two fares are mutually compatible with each other.

As you can see, pricing an airfare is a complicated business and requires a lot of work. This was a very simple example of a round trip fare. When you get into multicities, where for example, because of "stopovers", several cities might be covered by one fare, or you need to use fares from multiple carriers: it can be computationally very difficult to compute the lowest allowed price. People like http://www.itasoftware.com make a lot of money designing algorithms to compute the lowest price.

I should emphasize that actually this is a problem for the airlines too. They have over the years created a system which is so complex that they cannot predict it perfectly either. This is why "error fares" remain quite common. There is also a lot of inertia in this system. It is used by hundreds of airlines and millions of travel agents, and is written into huge computer systems worth billions of dollars. It cannot be changed easily.

While you will need a good travel agent sometimes, most of this is actually done these days by websites that sit on top of this 1980s interface. So thousands of these calculations are done every time you want to find out a price for a simple trip.

All the time the "availability" (those numbers we saw at the end) is being constantly manipulated by the airlines to keep the price at the right level to keep the flight maximally profitable.

It is my intention to demonstrate here, as well as giving a flavour of how it works, that pricing an airfare is a difficult mathematical problem to solve. Indeed, it has been proven that, strictly speaking, the problem is "undecidable", that is to say, it is mathematically impossible to design an algorithm that will always find the lowest allowable price under every circumstance.

Many people suggest that the price of a journey automatically rises when you compare several fares. But you can see from my description above that this would be technologically challenging to implement to say the least. (It would probably also be illegal.) In practise, is more likely that the availability is being miscomputed or cached somewhere between the airline and your screen.

  • 3
    @nsn The fares quoted are the "public" base fares, exclusive of taxes, fuel surcharges, airport fees and so on. Very few travel agents will get discounts these days, Lufthansa now charge a fee to the travel agents! Corporate discounts are available to high worth travel agents but those fares are not published in the public tariff, so alas I cannot see them. – Calchas Jun 16 '15 at 16:39
  • 3
    @nsn Because the carrier can price discriminate by geography. Let us suppose you want to travel from SCL (Santiago) to IPC (Easter Island). I notice if you buy the fare in SCL, or from a website based in Chile, the fare is usually about 50% lower than if you buy exactly the same journey in New York: People buying the fare in New York are probably rich tourists and can be milked for money. Those buying the fare in SCL are probably poor locals (generalising!!!) who simply will not purchase the fare if it is too high. With the internet, this practise becomes less and less useful. – Calchas Jun 16 '15 at 16:52
  • 1
    @nsn Other carriers in South America often use the Eligibility category in the fare rules to restrict their cheapest fares to local residents. At the moment as far as I can see LAN Chile simply uses the location of the sales agent to pick the price, perhaps because of legal concerns. – Calchas Jun 16 '15 at 16:54
  • 11
    This is one the the best answers I've seen on Travel SE! – Ayesh K Jun 16 '15 at 22:42
  • 2
    @Michael He may do, but a wise revenue manager will be extremely cautious at cannibalizing his high value sales by selling expirying inventory at a discount. Many airlines would rather see the seats empty than risk devaluing them. – Calchas Oct 14 '15 at 8:49
16

Promoting a comment to an answer - it's actually really really complicated! There's a reason why even Google can't give you an answer quickly, and why multi-city quotes can take such an age to run....

The best explanation I've come across of why this is, what goes into the complexity, what work there is in finding out the prices etc is given in this presentation by the folks at the ITA Matrix. There are a few maths-y slides, but much of it should be understandable by most people. Have a read, have a weep, then be glad that the ITA Matrix is available for free online to do the hard work for you!

  • 2
    That's a really nice presentation. 30,000 possible ways of flying from BOS-SFO each doable in one day – Calchas Jun 16 '15 at 20:21
  • I remember seeing the linked presentation years ago, but that link is now dead. The presetation author has archived it on his personal website in PDF and HTML format. – knowah Aug 7 at 12:50
9

There are different ways to determine the price of a ticket and it depends on different factors.

Every airplane has a different cabin(Y,Z,X,D...) and classes(first, business, economy...). Usually every cabin has a yield price, which is the amount of money the airline knows it has to make on every seat on that particular cabin to cover the operating costs. Obviously the airlines won't sell under the yield price, and it will expose to travel agents an ask price. The ask price is a function of different factors: seat available on the airplane, yield price, cabin, frequent flier numbers etc...

To tweak the ask price airlines have different systems, on the simplest case, they will close most of the available seats up to a couple of months before the flight, then open cabin by cabin on a per flight basis. Just before the departure they open a few seats that have a higher yield because they know they will sell them. What is interesting is that once they hit the yield price for the whole flight, they can play a bit more aggressively with the parameters to high revenue up.

There is no way to predict the price of a flight, usually there is enormous business intelligence put in place to get the better yield for a flight, historical data is checked and simulations are launched to find the better yield function that will get more revenues.

source: I used to work for Amadeus, one of the two biggest GDS systems in the world

9

I've worked in airlines and the process is as follows:

  1. Airlines buy or rent some planes. They also have permits to flight at a given date and time over some route. They cannot just grab some plane and fly whenever and wherever they want.

  2. If a jet costs as much as USD 150 million, and in 24 hours they can fly it for only 15 hours, the rest of time it must be on the floor for maintenance and passengers getting in and out of the plane. And only about 200 passengers per flight, you need to charge as much as USD 100 per hour of flight for only getting USD 100 * 15 * 200 = 300,000 per day or USD 9 million per month, so assuming there are no marginal costs for flying, you recover your money in just 2 or 3 years, if the planes are always full.

  3. What happens if one airline decides to charge USD 1 less for each flight? Nothing! It is not important for a $1,000 or $100 flight. But if they decide to charge 10% less they will always be full. And of course that is what the airlines want. The only problem is that other airlines can do the same, and price wars only leads to industry bankrrupcy.

  4. And of course you have heard about how many airline companies that were too big, went bankrrupt. United Airlines comes to my mmind. What did they do wrong? Once I travelled in United. I was the only passenger. So basically they were giving a USD 9 million experience for pennies. Was it nice? No, the attendant was not very nice, even if she had only to attend me, for some reason the employees didn't seem very happy. That is a sign the company has problems, because companies are made of people, and if people are unhappy, it usually means they feel underpaid. They give a bad customer experience, and if customers hate the company, you can be sure as hell they won't buy from that company again.

  5. Sometimes I buy a ticket from one airline and when I get into the plane it is from another airline. As you can guess, the airline did not grab enough passengers and decided to redistribute them among other airlines. The airlines can sell seats between them, at discount prices of course. So in theory you could have an airline that has absolutely no planes. You just need some airlines to offer you flights on the cheap.

  6. Well imagine you are the CEO of an airline. You want your planes to be full all the time. And you have this mechanism to keep the plane on the floor and still make money. Of course you should make more money when you actually take the plane off, isn't that obvious? Otherwise the incentive to not having planes would be too great. No one would fly. And you still need to fill the planes. You know some people plan their vacations ahead of time and they are very careful on how much they spend, because it is their money, while some people are employees and they need to be at a given time in a city for a business meeting. They plan ahead only a few days before. You charge them more, because they are making more money with the business meeting. And they don't care about the price, because it is not their money they are spending.

5

There is no such set of rules. Period.

Most airlines have a yield management department (sometimes called revenue management). The whole purpose of this department is to figure out how to set ticket prices to get the maximum revenue out of each flight. A lot of that is done manually (which is why they need a whole department for it, and often not a small one!)

There are of course some rules they use internally, but as soon as the general public figures out how to take advantage of such rules, the rules stop working for the airline, and they change the rules.

So as a consumer, it comes down to: there is no alternative to actually comparing prices.

Oh, and the various Web sites that offer to do the comparing for you? They usually don't include all airlines, or all fares, so you can still get a better deal elsewhere. Which fares do or don't show up on Expedia etc. is also part of what the yield management department does.

5

this is a very complex topic involving some very advanced CS algorithms and different factors. long scientific papers have been written on the subject. the simple explanation is that its a marketplace/ auction and prices are influenced by supply and demand. the basic price is related to airline costs such as equipment and fuel, taxes, airport fees. both supply and demand vary in complex ways. both supply/ demand are very dependent on time/ cyclical factors such as time-of-day, day-of-week, day-of-month, month etcetera (in other words the same distance or airport-pair costs differently depending on those). also the airlines are interested in revenue-maximizing algorithms which basically attempt to price tickets to achieve maximum profit. if the ticket is priced too high, too few are sold cutting into profits, if it is sold too low, there is greater demand but also less profit. etc

here are a few basic refs starting off with a 43p scientific paper by CalTech professors and a short analysis by a popular Math/ algorithms Phd writer Devlin.

  • it appears pricing systems have shifted significantly over the last decade. see also how airline pricing works / bbc news. "Long gone are the days when government regulation forced flight prices to be based on flight lengths. Today, the final fare is much more dependent on the person buying." – vzn Jun 18 '15 at 18:36
4

Just a simple (and possibly obvious) observation. Airlines want to make a profit. They have expenses for each passenger, slightly lower expenses for each empty seat, and income from each sold ticket.

How much do they charge? As much as they think they can get away with. They must charge no more than the competition, and no more than the reservation price of particular customer.

Business travelers can pay more than tourists. They want to travel on working days and get home by the weekend. They buy their tickets on short notice. So they're made to pay for that comfort.

0

This answer is moved from a question which is being closed as duplicate.

There is no excuse for it, bad for environment as people land and take of more often and quite often also travel more land miles to make use of a cheaper airport.

But Airlines do it as they can get away from it.

I have heard it explain as there is a big difference in costs the airlines pay for a transfer passenger compared to a long distance passenger leaving from or arriving at the airport. While short distance flights are on the lower cost scale.

One time several European friends all flew to Boston, USA, and all had comparable lenght (and days) of stay. The final ticket prices were about the same, within €50 from each other, bought around the same time.

  • One flew Bristol (BRS), Amsterdam (AMS), Boston (BOS).
  • One flew Amsterdam (AMS), Paris (CDG), Boston (BOS).
  • One flew Amsterdam (AMS), Rome (FCO), Boston (BOS).

At that time the flight Amsterdam - Boston was about €300 more expensive. As was London (HTR) Boston, if not more expensive.

I personally feel that the system of dropping the price when adding a leg should be stopped, but till a big country or a series of countries, or more likely both at the same time, make laws against it airlines will continue. So your best option is to search well.

By the way, in Paris one flight was delayed so arriving in Boston 3 hours late. On the way back the incoming flight was late in Paris so running and rushed few minutes. And in Rome luggage got 'lost', to be delivered 4 days late in our destination town a few hours drive away.
So it is worth considering to pay more for a direct flight.

-6

I think cost of tickets depends on many different factors. Also unavailability of tickets complicates your journey where you want to travel. If tickets are available on those dates when you want to fly then you can visit different sites to get specific information of prices of different tickets available.

  • 8
    This doesn't really answer the question as to how the prices are set – blackbird Jun 16 '15 at 15:53

protected by mindcorrosive Jun 22 '15 at 15:29

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