How Airlines Charge Different Prices for the Same Seat

How airlines charge different prices for the same seat is invariably questioned. Have you asked yourself why airfare keeps dynamically changing similarly to the stock market. Here may be a fast and easy lesson on airfares which will help you understand what happens when you buy tickets on-line.

Airline Goals

Airlines go to great lengths to create a profit of each seat and maximize each flight. Each airline possesses a sophisticated strategy known as “yield management” which aids them in charging completely different fares to different passengers for the identical seat.

Airline strategy is to categorize individuals to 2 factions, those who are willing to pay any amount for the airline ticket regardless of the price.  Then there are those who will not purchase tickets until the airfare falls below a particular price. Those who are willing to pay any price consist of business travelers, family emergencies or someone who doesn’t care about the pricing.

The trial to the airline consist where to price each seat. If the airline prices the tickets high they will only get bookings from the first faction. By doing so the airline will generate a high profit from this group however the airplane will have lots of empty seats.  Empty seats are an opportunity for the airline to make additional revenue.  In the other hand, if the airline prices each seat below the “standard” pricing the planes can fly full but the airline would be making less money from the first faction of customers who are willing to pay more.

The ideal scenario for the airline is to earn the most money by charging the higher cost for the first group, then obtain the second faction of passengers to purchase the rest of the seats at an economical price. This creates full planes and the airline makes the most of every flight.

What pricing faction did you fall into?

How is each seat priced?

Airlines set many fares for identical seats, perhaps quite over a dozen. With the assistance of practical techniques the airline maximizes profit by making sure a higher number of people buy the higher price tickets.  The airlines run software programs that regularly monitor flights and the booking patterns.  The program modifies the amount of accessible seats and prices. For example, if the tickets for a specific flight are selling quickly, the program can decrease the number of seats available at a lower fare or completely stop selling them at the low fare.

If a flight is now selling well, the program will price the seat at a lower price or seats that were shown as “sold out” will become available.  Although this process sounds simple, it is truly a sophisticated algorithmic method. Airlines hire professionals to watch and study the system constantly.

This method keeps running till hours before flight departure. Commonly, overtime the fares keep earning more of a profit because the seats are being sold. If you monitor the fares hour to hour or day to day you will notice there will instances when the fare price dips before heading back to a high level. This is when you get an opportunity to book tickets at a lower fare.