The stress of airline pricing

A few days ago, I managed to book an extremely low airfare to go visit my daughter in San Francisco.

I found out about the fare by using Skyscanner, where you can input your destination and the dates you want to travel and receive updates whenever the fare goes up or down.

So while I would recommend Skyscanner to keep track of fares, at the same time I don’t recommend it: I found it very stressful to keep getting these reminders.

Each time I got an alert, I had to ask myself “Is it time to buy now?”

“The fare just went down ten euros. Maybe it’s time to buy.”

“The fare went up four euros. Maybe that’s the beginning of a trend and I should buy now before it goes up even more.”

The tension – the indecision – was really getting to me.

So when it suddenly dropped considerably, I decided I’d better go for it. (But not until after posting the price to my friends on Facebook to ask if I should go for it. I really suck at making decisions!)

Buying it was even more stressful because there was a glitch in the airline’s website. I booked the ticket, paid through Ideal, and then got an error message telling me that it hadn’t gone through. That wouldn’t have been a problem, but the payment had gone through.

To make a long story short, it took the entire afternoon and several calls to some very patient call center people in South Africa before the problem was worked out. I’m on my way to San Francisco in November!

How airline pricing works

But that’s not what I wanted to write about exactly. This whole process made me think about airline pricing itself.

In pretty much the whole rest of the economy, prices change relatively predictably. Take, for example, a clothing store.

I want to buy a pair of jeans. If I buy the newest, most stylish jeans that just arrived in the stores, I’ll pay full price, and that price is likely to be high. It’s a desirable item, and the stores want to maximize profit. Fine.

Now say that the jeans don’t sell well for whatever reason; perhaps it’s a new style that people just don’t like that much. The store will lower the price.

Perhaps at first they’ll only lower it a bit, but the longer those jeans stay in the store, the lower the price will go. It’s predictable, and the price certainly won’t go up.

It won’t even go up if you really, really need it. Let’s say it’s the day of the prom, and you still don’t have a prom dress. The fact that you need one at the last minute is not going to affect the price of the one you buy that day. And the price you pay today will not differ from the price someone else pays today for the same dress, even if their prom isn’t for another month.

Now look at the airlines. It seems fine to me that they charge for different services: a baggage fee for an extra bag, or more money for more legroom, or a fee for the ability to change the reservation if your plans change.

Also, since the provider, the airline in this case, wants to maximize profits, it makes sense to charge more during school vacations, when demand is higher, and to charge less off-season, when they need to lure more people onto their planes.

Fluctuating airline prices

But that’s not all they do. The prices change daily. Skyscanner showed me that. And there’s absolutely no reason why prices should fluctuate that much.

I booked my flights, between Amsterdam and San Francisco round trip, for €450.32. I just checked again, and now it’s €730.32 for the same exact flights, with the exact same conditions. With slightly worse conditions (not rebookable, even for a fee), the lowest fare is €591.32. 

Airlines will talk about “fare codes.” If you have a Y ticket it is different from a V ticket. Supposedly, a certain number of seats are reserved on each plane for each price class. So once the cheapest seats are sold out, you can’t get the cheapest price anymore. Yet this €730.32 ticket is for the same exact flights and the same exact conditions. It might have a different fare code, but, really? You’re paying more than €200 more for a different letter of the alphabet?

The person sitting in economy with me who paid €730.32 will get exactly the same service as me as well. We’ll both lack enough leg room, get lousy food, and get transported to San Francisco. We’ll both be allowed one carry-on bag and one checked bag up to 23 kilos. 

To continue the analogy with the jeans, the price should continue to go down steadily as the flight date approaches, in order to fill up the seats and maximize profit. That’s not what happens. Instead, it fluctuates daily, and gradually inches up to absolutely exorbitant the closer to the flight date you get.

The people who pay the most are those who book last minute. I assume airlines do this because often these are businessmen who simply have to travel, so they (or rather, their companies) pay whatever is asked. 

I understand why they do that. If the price went down as the flight approached, everyone would wait till the last minute to book, and the airline’s planning would be chaos. This way the airlines maximize profits. It’s the price fluctuations months before that I object to.

I remember when budget airlines like Ryanair and Easyjet first made their appearance. They were welcomed because of the idea that they’d work like a bus: a seat costs a set price, and that price doesn’t change, so everyone pays the same amount. It didn’t happen: their prices fluctuate just like the full service airlines.

I don’t understand why this is even allowed: charging such a range of prices for exactly the same service. Is any other industry allowed to constantly change prices like this? And I wonder what would happen if an airline decided to play fair: figure out how much a seat actually costs, add a bit of profit, and set the price, leaving it unchanged until the flight date.

Wouldn’t that be nice?