Airfares: How Airlines Price Your Flight Ticket!

Looking for flights can be great fun, especially when you land a good deal. But sometimes it’s rather frustrating.

You can spend hours on the internet, trying different websites, but reasonable airfares are nowhere to be found.

Trying to figure out an airfare pricing system can seem completely random. But what seems random, is actually the airline’s dynamic pricing, using a strategy called Airline Revenue Management.

The system uses an algorithm that adjusts fares by using information like past bookings, remaining seats, average demand for certain routes and the probability of selling more seats later.

But before we get into the details of how exactly your ticket is priced, let’s take a look at how this system came into being.

The Evolution Of Airfare Pricing

Today’s pricing system is a far cry from the initial years of commercial airline pricing which was tightly regulated by the government.

Most international routes were operated by a single national carrier and the lack of choice resulted in uncompetitive fares for consumers.

Deregulation, however, changed all that, removing government controls over routes, airfares and market entry for new airlines.

As years went by, technology started coming into play and eventually, all airlines started using it to price their tickets according to the data available.

Artificial Intelligence is today the major driving force that airlines use to price tickets, based on the buying behaviour of different types of air travellers (Leisure Travellers & Business Travellers).

Basic Price Of Your Ticket

The price of your ticket consists of a number of things:

• Base Fare
• Taxes and airport fees
• Fuel surcharge
• Service fee to issue
• Food
• Seat selection
• Baggage

The last four are sometimes optional (especially for low-cost airlines) where you pay for them on top of the ticket price if you want them included.

With the traditional airlines, and for long-haul flights, these things are usually included in the ticket price.

Factors Affecting Your Airfare

1.Time

If you’ve travelled a few times by air, you must have noticed how airfares are usually at the low end, 3 to 4 months before the flight’s departure.

However, that price increase as the departure date approaches.

Leisure Travellers are flexible on dates but not on prices, while it’s the complete opposite for Business travellers.

Airlines try to attract leisure travellers by pricing the ticket at a cheaper rate so that they can fill up as many seats as possible.

The airline knows that as the departure date gets closer, business travellers will buy tickets at the last moment regardless of the price because they have to reach their destination at a specific date and time.

This is where airlines play it smart and price the seats higher.

For example, A Delhi-Mumbai flight ticket that normally costs Rs 6,000-8,000 could go up to nearly Rs 15,000 if you purchase it two days from the date of departure.

2.Competition

Fares to smaller cities with little airline competition are typically more expensive than fares to big cities with lots of different carriers.

3.Distance

The distance between two places plays a major part in deciding the airfare. The farther you fly, the more you’ll pay!

This is often true in most cases, however, on some routes this may be applicable.

The popularity of the route plays a huge part in this.

4.Demand/Supply

Airlines know when people want to fly, such as summer and major holidays. Which is why they raise prices during these peak travel periods, knowing people will pay.

Also, since there are more seats available in the start the prices are cheaper. But as the seats fill up , the supply of the seats reduces and the prices are kept high.

5.Load Factor

Airlines want to fill their planes and maximize profits. They do this by calculating a plane’s load factor.

Essentially, this is the percentage of seats sold on a flight!

Airlines don’t want to fly empty seats so they’ve become extremely efficient in calculating this load factor which helps them determine the price of a ticket.

They exactly know when and where we will fly, round the year.

6.Day/Timing Of The Flight

You’ll usually find a cheap ticket on the days when people are less likely to travel during the week. The least popular days to fly are usually Tuesday, Wednesday and Saturday.

Using the same concept, airlines price their tickets at a lower rate at not peak timings. Which means that if you want a cheap ticket you should choose a flight taking off at dawn, during meal times or overnight flights.

7.Flight Route

Sometimes, a connecting flight can be a lot cheaper than a nonstop flight.

For the airlines, nonstop routes are a gamble, as they require a consistent demand for travel on that exact route.

This isn’t a problem on popular routes or for flights to major cities, but usually on less compelling routes where demand could be an issue.

However, connecting flight routes solve this problem by funnelling all that traffic.

Instead of flying a half-empty plane, airlines fly a full plane to the connecting cities through the connecting flight, where they either join other passengers to fly to their destination or board a tiny regional jet for a short flight.

8.Oil Prices

As oil prices rise, so do jet fuel prices.

30% of the airline’s cost goes on fuel expenditure, which airlines cover by adding  ‘fuel surcharge’ on our airfares.

For now, it hasn’t affected us that much (Due To Competition From Low-Budget Carriers) however, airlines do feel the sting of rising oil prices.

Now that you know how air tickets are priced, Read more about “How To Save On Your Airfare”!