Did I Pay Too Much for That Airline Ticket?
Deciding exactly when to buy a plane ticket, and whether it’s a “good” price when you do, has thrown up a cottage industry around consumer doubt. Just like in a casino, passengers suspect they are the players and airlines are the house. And we all know who wins that one.
No shortage of “experts” will tell you that 11:17 p.m. on Tuesday is the optimal time to shop fares, or that buying 22.7 days before departure yields the best price. Unless it’s for international travel, then it’s 92.2 days. And what’s a good price if you have no experience in that market? Is $70 to fly from Los Angeles to San Francisco good? (Yes.) Does an airport with Southwest Airlines Inc. always cost less? (No.)
Why is this so hard? 1 Hard for you, that is. Airlines have decades of data to predict demand patterns on nearly every route, down to the hour, and how to react to competitors’ fare adjustments. As a result, fares are usually vexing to an airline only if they dip too low for too long.
These feelings of helplessness and frustration typically occur when a shopper has no baseline for what airlines usually charge for a given route, context that could help one deem a fare reasonable or ridiculous. A survey last year by Hopper, a startup that analyzes airfares, found that consumers incorrectly estimate roundtrip fares by more than $200. Seen another way, people are often more than 50 percent off the mark, compared with the actual ticket price.
Adobe Systems Inc. says it has a potential solution: A simple “formula” to help you assess the cost, based on its analysis of tens of millions of airline fares. The Silicon Valley company, which sells marketing and analytics software, says it detected a correlation between ticket price and total flight distance after scanning tickets sold in the first quarter of this year, allowing it to “reverse engineer” what a reasonable average fare would be on any given route.
This type of exercise, which has been done by others in slightly different forms, is an effort to bring a modicum of order to airline seat pricing.
“We’re trying to help consumers be smarter about their choices,” said Mickey Mericle, Adobe’s vice president of marketing insights and analytics. Adobe included its “formulas” for average domestic and international flight pricing in its 2016 travel report, released on Thursday.
On many routes, fliers are getting a good deal these days, as seen from the chart. For domestic flights, the Adobe math is: Roundtrip miles X $.032 + $230 to yield a figure that one might consider “good” for the route. 2 Internationally, Adobe’s formula raises the cost per mile to $0.08 and lowers the fare adjustment to $200.
Unfortunately for shoppers, while distance translates to an airline’s cost for a given flight—mostly jet fuel and employee wages—cost plays only a small role in how fares are actually set. “In the end, the seats are going to fly, and what revenue management does is put the most revenue on the plane, regardless of cost,” said Tim Lyon, a managing director of revenue management at the world’s largest carrier, American Airlines Group Inc.
The number of seats on a route, as well as customer demand, are far more important to the business of pricing, along with the level of airline competition. “As a general guideline on this, I don’t know that mileage is the best factor,” Lyon said. Figuring out a fair fare is primarily about “avoiding high demand” periods such as school holidays, he said.
Distance does matter on relatively short routes, on which airlines compete with ground transportation, Lyon said, citing Dallas-Houston as one example. “There are things we have to take into account to say, ‘I know I am competing with a car here,’” he said. “Once you get away from [short routes], it migrates into absolute demand.”
Another variable that can skew “good” fare estimations: Ultra-low-cost carriers such as Spirit Airlines Inc. and Frontier Airlines Holdings Inc. Those airlines depend on their low-cost advantage to offer fares such as $26, and they tend to price each route aiming for a specific profit.
Last year, the industry’s major carriers began matching these rivals in earnest on strategic nonstop routes—mainly large cities—and this has created widespread bargains in many markets. Distance has virtually no bearing on this skirmishing. In other words, check if Spirit, Frontier, or Allegiant Travel Co. fly in a particular market.
Some fare tools, including Hopper and Kayak, have attempted to divine appropriate fares by using a system that gives shoppers a yes or no about buying when they display a fare. Most people, it seems, don’t want to search for weeks, plug numbers into a formula or “be a stock trader” when it comes to finding a good baseline for a fare, said Patrick Surry, Hopper’s chief data scientist. “When you buy a car, you just want to get a price report and guidance of how much other people paid for that car,” he said. “You want enough context to make an informed decision.”
A 2014 study by Hopper found that “density of demand,” or population overlaid on a state’s size, played the largest role in domestic fare differences. Flight distance and airline competition have smaller influences on ticket prices, according to Hopper’s analysis, which ranked Alaska, Hawaii, and Wyoming as the highest-fare states.
If you’re truly flummoxed by the airline pricing game, Lyon, American’s pricing guru, has one tidbit of advice: “Travel in January, February, and September because those are the months airlines don’t have people traveling.”