Air Travel Supplement: It’s demand and supply that determines air fare

Author: 
K.S. Ramkumar | Arab News
Publication Date: 
Mon, 2009-06-29 03:00

THE traveling public might disagree, but according to airline executives, there is no mystery involved in the pricing of airline tickets. “It’s ultimately a question of demand and supply,” says Ibrahim A. Al-Hamer, managing director of Bahrain Air. This is echoed by most other carriers.

“When the travel season is low, airlines tend to keep their fare structure low and even if they try to keep it at a reasonable level, they offer a number of incentives. And during the peak season, it is the other way round — the same carriers increase their fares as they know people will travel during the holiday season no matter what the fares are,” he told Arab News. “In fact, it is during the peak season that every airline makes up its earnings lost during the off-peak season,” he added.

Clearly, the price attached to an airline ticket has nothing to do with the length of the journey. It has everything to do with supply and demand. The airlines employ some complicated computer programs to try to meet a number of goals, the main two being: To avoid flying with any empty seats and to maximize total net revenue, says a senior executive of Saudi Arabian Airlines.

For example, Lufthansa-SWISS offered an economy class round-trip fare from Riyadh or Jeddah to European destinations such as Amsterdam, London, Paris, Rome and Vienna for as low as SR1,600 during February and March this year, an off-peak season for travel. The same airline offers the same flights for almost double, or even more, for the holiday season that commences in July.

There are always conditions attached to off-peak fares, such as stopovers not permitted and the ticket (either in full or part) not being refundable. But despite the restrictions Lufthansa says it had “a sizable number of travelers” taking up the low fares during February-March.

While most people travel during the vacation period (school holidays being a major reason), there are business travelers and others who fly all round the year. That is why, during most of the year, airlines make every effort to attract these latter. They also focus on the services to such travelers, especially those who fly business class. This is confirmed by BMI Managing Director Peter Spencer. Speaking to Arab News, he said: “At a time when other airlines are cutting back and trimming luxuries, BMI is adding value, making a trip to London, more than just a flight.”

A constant review of the fare structure also enables an airline to compete with other airlines and attract passengers. It also realizes another goal, that of building up loyalty among regular customers. All these goals are what lie behind all those promotional packages and frequent flyer membership programs such as Emirate’s Skywards or Air France-KLM’s Flying Blue.

On the other hand, these offers and programs create their own additional complexities to the pricing maze.

Additional rules are designed to encourage flyers to book in advance, to fly on particular days of the week or at unpopular times, to include a weekend overnight stay, take along a companion or use less congested airports. Also, many airlines offer incentives to passengers who make their own bookings on the Internet. The savvy traveler who can stay awake long enough to make an Internet booking after midnight will occasionally come across so-called “Internet specials,” super cheap deals that disappear when the rest of the nation wakes up and starts booking their airline travel. But sometimes (although the airlines are loathe to admit this) there are special offers that never appear on the Internet and can only be discovered by talking direct to a company salesperson. The truth is that it does not always pay to go online.

Further complexity arises from the sale of blocks of seats by the airlines to third parties, often called “bucket shops”, who then sell them at discount prices (or consolidated fares).

The result is a ticket pricing system that has grown increasingly varied over the years, to the point where on some flights no two passengers will have paid the same price and where it may be cheaper to fly from Jeddah to London via Bahrain or from London to New York via Paris than take the direct flight.

Faced with all this confusion, with computers constantly monitoring sales and adjusting fares as often as ten times a day, the only practical option for the fare conscious air traveler is to use a Web service to try to locate the best deal. A number of such services have sprung up in recent years, among them Expedia, Travelocity and CheapTickets. These services trawl the Web looking for the cheapest fare for any given destination and dates of travel.

“Airline pricing has grown so complex that it is now practically impossible to design an algorithm that will find the cheapest fare,” says Abdul Aziz Marzouki, a local businessman. “The problem of finding the cheapest airfare between two given locations is actually unsolvable.”

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