If you’ve ever gone online to book a flight, you know how frustrating it can be to see the price for the same route fluctuate wildly from one day to the next. One day the nonstop flight from New York to Los Angeles is $299, and the next it’s $499 for the same dates. What gives?
The reality is that airline pricing is a complicated game of supply, demand, and educated guesswork. Airlines use complex computer systems and teams of analysts to try to predict consumer behavior and set prices accordingly. Their goal is to fill as many seats as possible at the highest price people are willing to pay. Here’s a look behind the curtain at how it all works.
First, Some Basics on Pricing Models
Most major airlines use a form of “demand pricing” rather than having set fares. Demand pricing allows them to raise and lower prices based on booking levels for each flight. The earlier you book, the cheaper the fare is likely to be.
As any given flight fills up, fares automatically increase since there is less supply remaining. Airlines have quotas and “buckets” for how many seats they want to sell at certain price points. Once the cheapest bucket is sold out, you get bumped to the next highest pricing level.
Airline pricing analysts feed massive amounts of historical data into their forecasting models and make pricing decisions based on factors like:
- Date/Time
- Route
- Plane Type
- Competitor Pricing
- Economic Conditions
- Major Events
- Holidays
- Weather Patterns
Airlines are constantly adjusting prices up until departure based on demand. The closer you get to the travel date, the higher fares will climb as airlines look to fill any remaining seats from price-insensitive business travelers.
So that $299 fare you saw last week for your summer vacation may have jumped to $499 this week based on higher than expected demand. The airline’s forecast showed they needed to increase prices to avoid selling too many seats at the lowest fare levels.
The Role of Competition
Airlines are hyper-aware of what their competitors are charging on any given route and obsessively monitor fares daily. Pricing systems can quickly make wholesale adjustments across entire routes to match or undercut other carriers.
You may have noticed how airlines often make near-identical price changes within hours of each other on city pairs they compete heavily in. That $20 fare increase you saw across the board was likely due to one airline raising prices first, signaling to others that demand was trending higher.
While airlines do encourage consumers to book early to get the best deal, there are advantages to waiting as well. As departure dates approach, airlines can get more desperate to fill any remaining empty seats. If a flight looks very undersold, they may initiate last-minute “fire sales” to attract price-sensitive leisure travelers.
Finding the Best Deals
So how can a cost-conscious traveler get the best deal in this crazy pricing game? Here are a few tips:
- Be flexible with travel dates – Even a day can make a price difference
- Use tools that monitor for price drops and allow you to re-book
- Book early, but keep checking back periodically for sales
- Check competitors if you get an expensive quote
- Tuesdays/Wednesdays tend to have cheapest departures
- Consider budget carriers even with fees for bags or meals
- Search one-way fares instead of roundtrip if necessary
At the end of the day, getting an “OK” fare takes flexibility, persistence, and the willingness to put some time into searching. Airlines are keeping a close eye on demand and taking advantage of any opportunities to generate revenue by bumping prices.
While it may be frustrating watching fares constantly move up and down, the airlines are simply responding to the invisible hand of supply, demand, and competition. With so many pricing possibilities, it truly is an art as much as a science to manage it all effectively.
The Bottom Line
The next time you’re staring in bewilderment at that crazy airfare price, just remember the huge effort that went into calculating it behind the scenes. By understanding some of the factors airlines grapple with, you may find yourself a little less stressed about the unpredictability of it all.
There will always be great deals and overpriced flights. The key is being an informed consumer and not pulling your hair out over the roller coaster nature of ticket pricing. Work the system instead of letting it work you, and enjoy the ride!