What are the variables that determine airline prices?

Question

I looked on howstuffworks.com but I can't find anything. I know the logical fuel, wages, etc. Yet, there is so much variation in what determines an airline price at any given time.

What is it $1500 using US Airways roundtrip, then $500 for American Airlines. Then you check the next day and the prices have totally changed, and on and on...

Can someone break this down for me? I sense a more complex answer than I may realize...

Answer 1

Airline pricing is based on a). supply and demand and b). competition, just like any other industry. However, airlines take this to an extreme through a practice called "yield management".

Yield management uses sophisticated software to predict how many seats will likely sell on each flight. The airline then divides up the economy class seats into different categories and assigns different prices and restrictions to them. The goal is:

a. to charge as much as the market will bear to business travelers and other customers who don't have much flexibility in their travel plans.

b. to put an attractive price on the seats that can't be sold at higher prices so that leisure travelers will want to buy them. Every seat that is empty at departure is lost revenue. Any revenue that can be gained helps offset the airline's fixed costs.

The number of discount seats is limited on each flight, but can be adjusted by the airline based on demand for that flight. That's part of the reason why you may see a wide disparity in prices on the same route. Airline A may have sold out of the discount seats while Airline B may still have some available. Airline A won't open up more discount seats if they think that they can sell the remaining seats at higher prices. Airline A will make more discount seats available if demand is below expectations and they will have a lot of empty seats on the flight.

The ultimate goal is to fill as many seats as possible and maximize revenue. It's quite complicated and even airline employees and travel agents sometimes find it challenging.

Answer 2

the best time to buy airline ticket is when it is lean season... lean season means there is no special occasion nor holiday so airfare tickets are more cheaper than when PEak season... peak season is when there is occasion or holiday like christmas day or summer where there are so many people like to travel so airline company raise the airfare... components of airfare are terminal fees, taxes, actual fare... =)

Answer 3

If you are looking for logic in airline fares, forget it. The airline fare needs to cover fuel, the cost of the aircraft, crew salaries, landing costs, administrative costs, airport rent, the cost of ground equipment, the cost of other airline employees, and all of the other costs associated with doing business including taxes, and even the cost of administering the company's stock and any benefits to employees.

Revenue taking in by air fares, mail and air freight is what pays for all of the company's costs.

I worked as a Customer Service Agent for United for 22 years, and selling tickets was part of my job, so I saw a lot of tickets. The underlying principle that I saw since deregulation was expect anything.

At one time UA had a fare from LAX and SFO to NYC that required a connection in CLE that was about $200. At that time the fare from CLE to LGA was $108! There were instances when people flew into CLE and wanted to get a refund on the CLE-LGA unused ticket, and I had to charge them an addition $150 or so. At one time when I worked in MCI, an airline had a fare from MCI to ORD of $0.49. Yes, less than 1/2 a dollar. It was a promotional fare, but still devoid of logic.

Here is an example for you. An airline figures that its administrative cost per passenger is $40. The flight is 2 hours, in an aircraft that costs $70,000,000 and whose  flight cost per hour is  $8000, which includes crew and fuel costs. The aircraft seats 200 people in a one-class configuration, and the landing fee for the destination airport is $1000. The fares need to cover costs of $3000 at the origin and destination airport. The aircraft purchase cost is booked out to $1000 per flight hour. What do you think the air fare should be?

Sorry, but you are wrong! Remember when I wrote that logic is not a part of figuring fares? Look for fares for two-hour trips and see what they are, and you will see what I mean.

Regards,

Dan