How Airlines Price Tickets ?

There are a lot of speculation about airline ticket prices, how airlines price tickets?  Air tickets can sometimes be found at very reasonable prices, and sometimes they can go up high. This brings to mind the question of why prices have increased or decreased so much?

Ticket prices are adjusted by considering many factors:

• Base fare
• Maintenance costs
• Destination
• Taxes and airport fees
• Fuel surcharge
• Service fee to issue
• Food
• Seat selection
• Baggage

It is possible to enhance this list easily. There are way more factors which affect ticket prices and we will detail some of them. By the way some of these factors can be optional like seat selection, food service, or additional baggage.

Airlines use a mixed and sophisticated system for ticket pricing. When the plane is full, cost per person to the airline company has the lowest level. That’s why companies compete to sell tickets. Of course, no company sells tickets willingly at a loss just to fill the plane, that is, they do not make a reduction in ticket prices below a certain percentage. In the face of this dilemma, companies try to air the plane as full as possible and sell the tickets without going down. This method is known as “revenue management” in the aviation industry.

Leisure Traveler and Business Traveler

As companies try to maximize their revenue they use some factors for their positives. We may classify passengers into two categories. Leisure traveler and business traveler. Leisure travelers are more flexible and they tend to search economical alternatives. On the other hand, business travelers have to travel on certain times and certain dates which match with their jobs expectations. For some routes there are some fixed flights which serve mainly to business travelers. This is a major factor for the demand to closer date flights and this brings the high ticket prices. It is fair to say that as we get closer to the departure date, there are only seats in the higher, more expensive booking classes available.

 Sometimes you might see prices fall close to the departure date where the cheaper seats haven’t been fully sold out yet, and the airline opens up a new discounted booking class, trying to cover at least their costs for the flight.

Special Dates

Another major factor on ticket prices is the date of the flight.  Some days and periods of the year increases the demand for flights by nature like national holidays, school holidays, new year, thanksgiving, religious holidays and even weekends. Generally, flight tickets are expensive at such times. It is fair to say that Friday afternoons and Monday mornings have high demand for weekend holidays. We may add the high demand hours of day such early mornings and afternoons for go and return flights for business travelers.

Competition

Another factor on the table which affects ticket pricing is competition. Competition among airline companies is a broad subject and consists many variables. In brief we can say that if a flight has lots of alternatives (we may include different types of transportation like bus or ferry) then this is a factor that has a decreasing effect on ticket prices. On the other hand, if there are no or less alternatives, then ticket prices are high.

Company Policy

Company policy is another factor. As we all know that there is a term of Low cost airline. It is a term used for low cost airline companies (EasyJet, Ryanair, AirAsia…) that make cheap flight tickets possible by reducing the expense items to the lowest level. On the other hand, some companies like Qatar Airways, Swiss Airlines, THY… do not want the word “cheap” to be used with their names. They aim to serve with quality priority and that means usually high ticket prices.

Fuel Prices

Fuel prices are another major factor affecting ticket prices and that is independent factor from companies. Globally fluctuation on fuel prices affects the pricing policy and making it more complicated. For further reading “Effects of Fuel Prices on Air Transportation Market Average Fares and Passenger Demand (Ferguson et al., 2009)” research is highly recommended.

Finally, it is clear that companies use very complex systems and algorithms while building their ticket pricing policy. And as you see there are lots of variables. It is fair to conclude that if the demand is high, competition is low and it is a last minute deal then ticket prices are generally high. Vice a versa if the competition is high, the date and time of the flight is reasonable (not a Christmas or a beginning or return dates of a holiday) then prices are relatively low. In general avoid having last minute calls and plan your travel at least three weeks before the expected date ?

Farewell…

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