Dynamic pricing in airline industry: why flight fares constantly change
Science & Technology
Introduction
On a flight booking website called Fear Boom Calm, a fare forecasting feature utilizes a sophisticated machine learning algorithm to predict flight prices, assisting travelers in making informed purchasing decisions. But why is it necessary to predict flight prices, and why do they constantly change?
American Airlines, the largest US carrier, changes approximately half a million prices daily, leading to fluctuating prices for the same service class on the same flight multiple times within days. Airlines aim to maximize profits by selling seats at the highest price while filling as many seats as possible. This intricate balancing act involves understanding traveler behavior, distinguishing between leisure and business travelers, and utilizing strategies like fare buckets to adjust prices accordingly.
Leisure travelers, who plan in advance and are price-sensitive, are targeted with cheaper tickets sold in advance. Business travelers, who require flexibility and book closer to the departure date, are willing to pay more. Advanced purchase discounts and fare bucket motion drive most price changes, along with factors like fuel costs, seasonal trends, and competitive pricing.
Moving towards personalized pricing, airlines are exploring new data exchange standards like New Distribution Capability (NDC) to gather detailed customer data and adjust pricing strategies accordingly. As airlines transition to more personalized pricing models, tools like fare forecasting features may become outdated.
Keywords
Dynamic pricing, Flight fares, Fare forecasting, Machine learning algorithm, Leisure travelers, Business travelers, Price fluctuations, Fare buckets, Personalized pricing, New Distribution Capability (NDC)
FAQ
Why do flight fares constantly change? Flight fares change due to various factors like demand, fuel costs, seasonal trends, and competitive pricing, driving airlines to adjust prices to maximize profits.
How do airlines differentiate between leisure and business travelers? Airlines target leisure travelers with cheaper tickets sold in advance, as they are price-sensitive, while offering more expensive tickets to business travelers for whom flexibility is crucial.
What role do advanced purchase discounts and fare buckets play in airline pricing? Advanced purchase discounts and fare buckets help airlines manage pricing by offering lower fares to early bookers and adjusting prices as demand increases or decreases.