Understanding Airline Ticket Prices: Why Your Seatmate's Airfare Cost More (or Less) than Yours

Anyone who has ever shopped for cheap airline tickets is acutely aware that when you buy an airline ticket, you may pay hundreds of dollars more – or less – than someone purchasing an airline ticket for the very same flight.

Cheap Airline Ticket Tactics – Like Shopping at Macy’s (Kind Of)

Does this make sense? Well, think of it this way: you’re shopping for a sweater, and you happen to make your purchase at Macy’s during a big sale. You choose the same sweater your Uncle Mike bought the week before, only he paid twice the price you did. Same with airfare, right?

Not exactly. Nothing is simple when it comes to finding cheap airline tickets.

In fact, airlines hire armies (well, at least squads) of computer geeks to work with complex software with one goal in mind: to maximize the profit on every seat – on every plane – on every route.

Selling Airline Tickets Like Selling Lemonade

We shouldn’t begrudge airlines for this behavior; I mean, it just makes sense from a business perspective–prices soar for airline tickets during peak air travel periods based on the fundamental supply-and-demand principle. Even the kids in my neighborhood know this: during those scorchers in August, they charge twice the price for lemonade on our cul-de-sac in Dallas as they charge in March.

My theory is, the more you know about how the airline ticket system works, the more you can make that system work for you. Call it “gaming the system” if you will, but to me it’s a matter of good quality research – plus using simple tools – that leads to great airline ticket buying decisions.

How Airlines Price Each Seat: Breaking It Down

So let’s break down a typical Boeing 737 – let’s say there are 137 seats in the cabin – and let’s take a look at the airline ticket pricing for a relatively full plane.

A typical domestic flight has about 10 airline price points (or ticket prices) for its economy class. The top end of this airline price point “ladder” is relatively uniform across domestic routes (international flights are completely different), and the top airline price point is typically between $500 and $800 one-way for legacy airlines, and between $400 and $500 for low cost carriers.

Now, the bottom end of the airline ticket price range depends dramatically on the following variables, and they are listed in order of importance:

  • Competition on Route
  • Seat Demand
  • Distance of Route
  • Seat Supply
  • Fuel Prices

These airline ticket price points are typically split in half – with the lower portion known as “leisure” ticket prices and the upper portion are the “business” tickets.

The thinking is pretty simple here: business travelers typically are far less price conscious and more prone to buy expensive, last- minute tickets than leisure travelers. Leisure travelers are the ones who are ultra-price conscious and more flexible on travel dates and destinations.

Clearing Airline “Hurdles” to Land Cheap Flights

Airlines use what some call “fences” to rope passengers into these two groups – I like to call them “hurdles.”

Let me explain. Airfares are the unit of measure for these price points and they have rules (or hurdles) associated with them, that if adhered to, will help you move down from a high price point to a lower level. These are some of the hurdles you must clear in order to be in that elite group that pays the cheapest amount for airline tickets:

  • Advance Purchase – The cheapest airfare typically requires you to purchase your airline ticket at least 14 days before departure (on some low cost airline routes, it is reduced to 7 days).
  • Minimum Stay – The cheapest prices often require you to stay as least 2 nights, while other cheap airline tickets require a Saturday night stay (something business travelers hate to do).
  • Departure Day Requirements – Increasingly, cheap airline tickets require you to depart or return on Tuesday, Wednesday or Saturday – the slowest air travel days.
  • Flight Time Requirements – In some cases, the cheapest airline tickets restrict departure times to the least popular times of travel, including first flights out in the morning, after lunch and after dinner.
  • Maximum Stay – This is typically only an issue on international travel where a stay of 30 days or less is required to get the cheapest seats.
  • Travel Window – Often airfare sale prices “set” a travel departure window – so that you can’t buy cheap airline tickets in winter for the popular summertime vacation season (the window is usually two to four months from the date you purchase the tickets).
  • Purchase Date – Recent airfare sales have been good for three days only, and we’ve also been seeing a smattering of one-day sales.
  • Flight Restrictions – Sometimes, the cheapest airfares are forbidden on non-stop routes (a common technique used in legacy airline hub cities).
  • Blackouts – High passenger traffic times of the year such as Christmas and the summer vacation season are typically “blacked out” – meaning, the cheapest airfares are not available for these periods.
  • Surcharges – On the flip side, peak travel days (popular days to fly) are often slapped with an extra fee called a “surcharge” – anywhere from $10 to $30 each way; and historically, we have also seen fuel surcharges tacked on when oil prices jump up.

More Airline Hurdles

So now you know the airlines’ airfare “hurdles”, but it doesn’t stop there: airlines have a few other obstacles they erect between you and the cheapest airline tickets – based on supply, demand, predicted trends, historical trends and convenience.

You see, when you ask for a quote for trip with a defined departure and return date (a trip whose dates and times also clear all the airfare hurdles), you’ll also get a final once over by the airlines. They look at that cheapest seat price you are eligible for and may decide “No thanks, right now I think someone else is more likely to pay more before departure, here is a higher price I can live with right now.”

This is where the crazy science of “yield” management comes into play (remember those computer geeks). Computers using sophisticated algorithmic models — tweaked by human analysts — make a final decision, right now, on your seat price. These models can and do change their minds at any time which is one reason why you may get a different quote for the same flight at different times during the day (the other is price changes in airfare).

Our goal at FareCompare is to demystify this craziness with simple tools that help you make great (and cheap) airline ticket-buying decisions. We have been working on it for years and are just now starting to roll out new tools that are fast, simple and effective to help you find a deal, every time you shop.

To button up this discussion, I expect that the next time you’re on a plane, each and everyone one of you will brag to your seatmate that you know exactly why they paid more (or less) than you did, for the same exact seat.

Better yet, just go ahead and brag that the folks at FareCompare have got your back.

Learn more about FareCompare and the cheapest days to fly and best times to buy airline tickets for year-round savings.

Author:

Published: January 7, 2011