Air Fares 101 – Why do fares change all the time?

Practically, that means that you can only game the system if nobody else knows how. If you are the only one that knows how, the algorithms probably can't detect and compensate for the error. As soon as news breaks out, the algorithm starts compensating. We saw this about 10 years ago when there were a few companies that started promoting the ability to search for Y-class fares...it was all but a year or so before the pricing stabilized. The same problem is currently happening for the hidden-city ticketing trick [1](the algorithms are compensating, although the airlines put in some manual systems when it first broke news).

The same goes for these ideas of "the best time to buy". Not only is historical data not good enough, but the more well known the data becomes, the worse the predictions become. This has already happened to some degree with the "buy as early as possible" crowd. Now it is more expensive to buy early than it is to buy late...something that wasn't previously true.

The lesson? If you figure out a way to game the system, don't tell anyone else.

[1] http://www.wsj.com/articles/SB100014241278873235398045782597...

It's not just me: it's a common opinion. One prominent business magazine had a cover a few years back titled something like "The companies we all hate"

Consumers like to purchase things in atomic units and simple terms. If I go to the grocery store, there's a bushel of apples. The sign says "Granny Smith apples: $1"

I can confidently pick up an apple, walk to the register, and expect to pay a dollar. The grocery store can advertise their wares and prices in the paper or online and I can plan on going to the store and making the same exchange. People like being able to predict how much of one thing they have to trade for an amount of something else. When lots of competitors do this in a market that anybody can participate in, it's good for everybody.

But when I buy an airline ticket? The rules are many times so byzantine that entire cottage industries have sprung up in an effort to capitalize on them. How much does it cost to fly coast-to-coast? Beats the heck out of me. There is no answer. Could I pick up a job where I had to fly ten times from point A to point B with a few day's notice and be able to include travel costs in the price? No, not unless I were to charge up to 17 times the cheapest rate.

Complex pricing systems may be great for the airline, but they're damaging to the free and open market. Instead of using rapidly-changing yield management systems, we'd all be better off if they just used an cross-carrier auction with transferable tickets. Let downstream providers handle liquidity.

I doubt this will happen, and instead there will be more penny-pinching, crazy rates, and unhappy customers.

The most striking difference is that, in general, the flight attendants are happy. They smile. They joke around. Sometimes they sing songs. I was on a flight a few months ago where the entire plane played a game because it was someone's birthday.

If Southwest flies anywhere close to where I'm going, I make a point to fly with them. Even if they're slightly more expensive, the drastically less toxic experience makes up for it.

Just something to keep in mind from someone who often plans travel 6+ months in advanced. Booking flights 3-4 months in advance is fairly safe, longer or shorter and you might suffer for it.

On ExpertFlyer, we show all of this hidden raw information that normally only travel agents have been able to see as we buy the data from the airline reservation systems. The first few pages of our education guide give a simple overview of how this works: http://www.expertflyer.com/edu-guide.pdf

There are many sites that describe this happening, such as [1]. And I've seen it happen to me: a fare would go up by $50 while I was searching, and opening a private browsing window would make it go back down.

[1] http://www.halfwayanywhere.com/budget-travel/your-guide-to-c...

The volume of pre departure cancellations can be crazy for some routes to a point people wouldn't even believe.

Most flight search engines now let you set up alerts to track prices, but I also think those aren't ideal because if you're flexible about where or when you might travel you'd have to set up thousands of alerts. (example: I'd like to go somewhere warm for a weekend in January from New York. There are 113 warm weather destinations within 4 hours of New York; I can leave on Friday or Saturday and return on Sunday or Monday; there are four weekends in January = 1808 alerts to set!).

This is exactly why we built Hitlist (hitlistapp.com, available for iOS and Android), an app which monitors airfares across swathes of destinations and dates and sends you notifications when there are ridiculous fares. Some of you might find it useful!

This is another reason to be wary of ubiquitous tracking for marketing purposes. Say I want to fly from Kent to New York via London. I book my expensive transatlantic flight and once that is secured, book my domestic flight.

But if Big Data is watching my actions, what is to stop the airline hiking the price of the domestic flight as soon as they see me booking the transatlantic flight? At that point I am committed and will be forced to pay much more than I had planned for the domestic flight.

http://en.wikipedia.org/wiki/Revenue_management

I suspect there is somewhere in the behavioural economics literature a pricing mechanism that has many benefits of dynamic pricing but allows the buyer to feel I control - they know the complete range of fares and the complete range of prices and so feel able to buy without the fear if missin out.

I'm from Europe myself, and it usually costs us anywhere from $40 to $150 to travel anywhere in Europe, though the prices do go up if you want to go to a place such as China, Thailand, or even India. But then again, that's Asia!

Another thing that surprises most people is how expensive business and first class are, relative to coach. After all, if you're only getting 1.5-2x as much space, it doesn't seem fair that you'd have to pay 10x prices. The truth is that many of those seats are filled via upgrades to frequent fliers and more fairly priced in that view. But someone who asks for an assured first-class seat (which is where the 5-10x premium is charged) is identifying himself as a captive buyer. About half of the first-class seats are upgrades (especially to make room, because airlines often overbook) given that day, and those are cheap or free, but the other half are a mix of business travelers under time pressure, invited conference speakers whose flights are booked by a third-party, and people with disabilities. While people complain about the "assholes" in first class getting marginally better treatment, a surprising percentage of the people up there aren't rich at all, but have disabilities (e.g. back and knee problems) and can't fly coach, and those people fly once a year (!!) at most, because they can barely afford it. Perversely, the disabled guy of modest means is going to see a higher fare for a first-class seat than a business traveler on a corporate rate.

Oddly enough, air travel is getting to the point where airlines are intentionally making coach travel worse to make up for a decline of first- and business-class passengers since 2008. While one might think that the purpose of the checked bag fees is to make a little extra money (and that's part of it) there's a much larger gain in filling up the overhead bins (thanks to those horrid checked-bag fees, overhead bins always fill up early) and then selling early boarding for $50 per ticket. Waiting spaces at many terminals have been deliberately neglected for acoustics and outlets, to push people into buying first-class tickets just to have access to the lounges. Natural demand for first class seats hasn't recovered since 2007 and, even with the economy back, it won't, so air travel is now an experience where unpleasantness is deliberately induced.