By Brian Sumers, Staff Writer
@briansumers on Twitter
Posted: 06/29/2013 05:09:59 PM PDT
Updated: 06/29/2013 08:43:27 PM PDT
Let’s say you’re an airline executive focused on maximizing profit. Do you aim to fill every seat on each flight? Or do you raise fares, knowing that a few seats — or even more — might go empty.
For most airlines, the emphasis is on the latter. The goal, almost always, is to make the most money. If that means not every seat is taken, so be it.
“You can make it very simple,” said Chuck Schubert, vice president of network planning for American Airlines. “If I could sell all my tickets for $10, I am certain I could fill the plane. But I’m also certain I could not make money. It’s about balancing the load factor of the plane with the yields, or what people are willing to pay.”
American pioneered this pricing structure about 30 years ago, after the federal government deregulated the airline industry, allowing carriers to fly whatever routes they wanted at any fare.
By now, you would think passengers would have figured this out. And at some level, they have. Fliers understand they won’t pay the same as the person sitting next to them, and they have come to accept that.But the way airlines price tickets — the crazy wrinkles that cause prices to rise and fall constantly — still confuses all but the most perceptive travelers. And as computer systems improve and algorithms become more sophisticated, it becomes even more complicated.
Fare pricing is considerably more complex than the relatively new fees airlines have been assessing. Travelers may not like paying for extras like priority security and boarding, food, flight changes and checked baggage, but at least those things are priced consistently.
Not so for fares. If travelers planning travel for the Fourth of July holiday this week looked carefully during the past several months, they probably would have seen prices fluctuate multiple times.
“It’s a question of the ability to charge the right price to the right customer at the right moment,” said Robert Mann, an airline industry analyst and former airline executive. “All this depends on an airline’s ability to forecast well.”
Early is (usually) better
To read entire story, click here.