Tuesday, January 27, 2009

Why Do Airfares Fluctuate?

Below is one of the best explanations I have found regarding airfare pricing as set by the airlines.

Why do airfares fluctuate over time?
"It's called yield management. The airlines have it down to an art form. The objective is to get the most amount of money they can from each flight.

At one time, the airlines sold all seats for the same price, but then decided that they could attract additional money by offering discounts for people willing to book far in advance. Those people tended to be people who didn't normally fly, so the airlines were able to attract additional passengers to their flights, along with additional revenue, without jeopardizing their base ridership.

The process has evolved to the point where the airlines know which days will attract more passengers, like the start and end of spring break, the Christmas holidays, and Thanksgiving. They price seats higher on those days. They also know the days when it will be harder to fill aircraft, like mid-week in February to Europe, when they will drop prices to attract additional traffic to fill their planes.

Their general strategy is to set an initial price, based on how many seats they expect to fill. They monitor how quickly the seats are selling, and adjust the price upward until they feel they will get the highest price they can on average, while still trying to fill the aircraft. Occasionally, they will raise the prices too quickly, and back off a bit as the date of the flight gets closer, but that doesn't happen very often. ...."