Travelers often bemoan the gambling in airline ticket-shopping: Do I buy now or wait to see if the fare decreases? One reason for that casino feel is the computerized alchemy of what’s known as revenue management, the airlines’ 24/7 effort to improve their financial performance by meticulously allocating the number of seats at various price levels and overbooking flights.
It’s an algorithm-based field of math and computer science that is, literally, akin to rocket science. A typical day’s operation for the average global airline involves roughly 100 million fares to be analyzed and managed, says Bill Brunger, chief executive of PODS Research, a revenue management consultancy and a former vice president of Continental Airlines. He and Scott Nason, a former vice president of revenue management at American Airlines, discussed the dark arts of airfare pricing on Tuesday at a conference hosted by Airlines for America, the U.S. carriers’ trade group in Washington. (Nason also runs a revenue-management consulting firm, SDN TT&H Consulting, in Dallas.)
Advance-purchase rules help segment airline seat prices into different market categories, with a single flight often having 20 or more fares. That model—with purchase deadlines of one to 90 days—helps revenue managers deal with seat inventory that usually comes onto their books a year before the departure date. Fares that are booked 21 days early, for example, generally cost less than fares bought a week or less before travel. Airlines also overbook most flights. The amount of no-show passengers has been remarkably stable over the years, so carriers can predict which routes and days correspond to a high number of absentee fliers. It’s also financially lucrative—overbooking accounts for 2 percent to 4 percent of the industry’s entire revenue, Brunger said.
And if you think buying vacation flights nearly a year in advance will help you get the best ticket price, it won’t. “They don’t know too much” a year out, says Brunger. “When revenue management people are nervous they usually pick a default level that’s conservative.”
As the shopping season for Thanksgiving and Christmas travel approaches, here are a few ideas from the two airfare experts:
1. Book early-ish. Hardly an exact metric, Brunger concedes, but it means not waiting too long, hoping that an airline will have too many empty seats on the flight you want three to four weeks before departure and get desperate to sell them. (That’s exceedingly rare, and means something went wrong for the revenue manager.) The closer you get to the advance-purchase deadlines, the more clarity airlines usually have on their pricing forecasts. When it works as planned, revenue management means an airline has sold exactly the number of seats at each fare level that it had intended—closer to departure, the seats that are left cost far more.
2. Book at a price satisfactory to you. If you can live with the cost and it seems decent, take the plunge. “If the fare feels like a fairly good fare, I would buy,” Nason said.
3. Stop looking. You don’t need to keep shopping a flight you’ve purchased, see the price drop, and feel like a dope. (And airlines are much less likely to refund you the savings than they used to be.) Sure, there’s an argument to be made that such a painful education may help you become a better airfare shopper, but few people are obsessive or patient enough to keep tabs on routes’ pricing at all times. Said Brunger: “Buyer’s remorse is a real thing.”