We all love a bargain, especially when forking out for plane tickets – but unfortunately for tight-fisted travelers, many of the “hacks” we use to come about them don’t actually work. Whether it’s buying tickets on a certain day, clearing cookies, or using a VPN and browsing incognito, these tricks are at odds with how airlines set prices, according to a recent study that set out to demystify the process.
“There are so many hacks out there for finding cheaper airline tickets,” Olivia Natan, an assistant professor of marketing at the Haas School of Business and an author on the paper, said in a statement. “But our data shows many of these beliefs are wrong.”
Natan and colleagues investigated the organizational structure and pricing at a major US airline, identifying a system that is representative of airlines around the world – and it’s not what you’d expect. Even the study authors were surprised.
“We initially didn’t know how to rationalize the things we were seeing,” Natan added.
Firstly, they discovered that airlines don’t consider that consumers are likely to make choices based on the balance of convenience and price. Generally, if one flight is more expensive, you might expect people to sacrifice convenience and book a cheaper one, perhaps at a less desirable time.
However, airlines don’t take this decision-making into account, focusing on the prices on each individual flight, and not on the total number of seats sold that day.
The team also found that airlines don’t factor competitors’ pricing into their decisions. This means that, contrary to what might seem sensical, if one airline drops its prices, others don’t necessarily follow suit.
In fact, airlines are quite inflexible with their pricing, with large gaps between pricing brackets. For example, they may advertise the first 30 economy tickets at the lowest price, then the next 30 tickets at the next price level, and so on.
“Airline tickets are sold through global distribution systems that make sure a travel agent in Wichita sees the same price as you do on your computer at home,” Natan said. This might sound like a positive, but it means that airlines are generally unresponsive to real-time changes in cost. They’re restricted by the pricing system as the next discrete fare is often significantly more expensive. As a result, even if they’d like to raise the price a little, they rarely do.
It also seems that airlines, for some reason, don’t maximize short-term revenue.
“We talked to all of these managers who said the pricing team doesn’t know what it’s doing,” Natan said. “We found they could make more money today by selling fewer tickets at higher prices and not foreclose future opportunities. In practice, they seem to be choosing the menu of prices somewhat arbitrarily.”
It then falls to the revenue management team to correct this by making demand forecasts, which are usually inflated, and determining the final prices. Consequently, around 60 percent fewer underpriced tickets are shown to consumers, which, Natan admitted, is “very strange”.
It could be that this is because of a lack of coordination across departments, or perhaps an attempt to foster customer loyalty or avoid scrutiny, Natan suggested.
All of this is to say that, when searching for a cheap ticket, your frugality is probably futile. As things stand, no savvy hack can combat the peculiarities of airline pricing.
So what can penny-pinching passengers do to save a few bob? According to Natan, the early bird gets the worm.
“What I can say is that prices do go up significantly 21, 14, and 7 days before a flight,” she said. “Just buy your ticket before then.”
The study is published in The Quarterly Journal of Economics.
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