What airline insiders wish you knew (but are afraid to tell you)

Ever wish you had the chance to ask the airline industry burning questions about how they come up with pricing, and why change fees are so darn high?

Well, wish granted.

I consulted a few insider sources — alas, they’re a little media-shy, so they’d prefer not to be named — and put the tough questions to them.

Oh, and don’t worry if I didn’t answer one of your queries. I’ll get to those next week …

First, let’s talk pricing. Why do flight prices seem to change from minute to minute? How are they determined? This answer is just as complicated as you would imagine it to be, so get ready.

What’s the life cycle of an airline seat?

Airlines — like any business — want to maximize revenue. This has been especially important historically, as profits have been hard to come by for a number of reasons, many of which are outside of the industry’s control (e.g., fuel prices).

Now, each seat on a given flight has a life cycle, from the moment the airline publishes the initial fare months in advance of the flight, all the way to when the flight attendant closes and locks the door. However, as that door closes, any unoccupied seat represents lost revenue. Think of vegetables or fruit with an expiration date. Once the plane leaves, the airline will never be able to capture that revenue.

Therefore, airlines do everything they can to maximize the bookings (butts in seats) on each flight.

Can you explain the price difference between seats?

Airlines are selling to extremely different audiences for nearly every flight. These range from leisure travelers looking for the absolute cheapest fare and booking far in advance to business travelers who will pay a premium to book at the last minute.

This is why you rarely see prices go down as it gets closer to a flight. Because if the airline has done its job correctly, they will be able to fill those seats with people willing to pay much more than the base fare. Think of it this way: If you have 10 seats left on a flight, it’s better for the airline to sell two seats at $1,200 than it is to sell five seats at $400.

Why are there so many fare classes?

A seat isn’t just a seat (deep, right?). On a three-class flight, you will have multiple booking codes within each class. This is probably the single greatest source of confusion for folks booking tickets, be they travelers or professional travel agents.

An easy example here is refundable vs. non-refundable. Certain travelers will pay more money to have the flexibility to change their flights. Generally, these changes happen at the very last minute, so the airline prices that fare accordingly, in the event that they are unable to resell that seat.

There will be other codes as well, such as those reserved for travel agencies who do a lot of volume with a particular airline across its network or even just on a single route.

Can you please explain codesharing?

Codesharing  is when one airline will sell tickets on a partner carrier in order to grow their network and offer their travelers more destinations. A good example here is United and Lufthansa between Washington Dulles (IAD) and Frankfurt, Germany (FRA). Depending on the airline, there may be different fare codes, so it may actually be cheaper to book a flight via Lufthansa that is operated by United than via United directly. (Yes, I know how crazy this sounds, and in reality airlines go out of their way to avoid these conflicts.)

It’s important to remember that something as simple as the day you’re flying could have an impact on the ticket price. It’s why the same flight will cost more to fly on a Monday than on a Tuesday — business travelers fly on Monday. Therefore, airlines want to take maximum advantage of that fact.

At the end of the day, there may be no more true case study of the use of dynamic supply and demand at a microeconomics level than an airline ticket. Yes, pricing is confusing, but it’s not designed to “scam” the customers or deceive them. It’s designed that way to accommodate as many travelers as possible, while still allowing the airlines to make money in the process.

And, remember, prices don’t really change “by the minute,” so if you see a fare, don’t think you can’t shop around. You have the time. Just as the airlines do, focus on maximizing the value for your money. Take a look at different days of the week, check airline websites for codeshare partners, and think through how much your time is worth (e.g., do you want to connect or fly direct?).

Why are change fees always so high?

The issue goes back to the fact that an airplane seat is a perishable product with an expiration date. It’s also the reason that they have the various fare codes. You could have purchased a refundable fare for more money upfront, but with flexibility in the event things changed. The charge is designed to cover these last-minute changes and their impact — not just on your original flight, but on the new flight as well.

It’s important for customers to really consider the possibilities associated with their trip. What are the odds that you will have to change your plans, for example? Take a look at refundable vs. non-refundable fares and make the decision that best fits your situation. It’s a part of risk management for both airlines and their customers. Change fees are in place because even if you pay the difference in fare, if the airline can’t resell your seat, they’re losing money.

Why are some shorter trips more expensive than longer trips?

For the most part, you should expect prices to go up as the route gets longer. But, as I’m sure is clear by now, this industry is very complex, and therefore an answer is never as simple as that. There are a few factors at work.

Obviously, if you have a route with high demand (JFK to LAX), there will likely be competition and fares may be cheaper than less popular routes (e.g., Richmond to Syracuse). Some of this competition may include LCCs (low-cost carriers) and essentially create a price war and a race to the bottom. Of course, there are exceptions to this — for example, when one airline dominates a market.

There’s also a second part of the equation. Airlines are always looking to find economies of scale. In the industry, cost is often measured as cost per available seat mile (CASM). Every flight has its fixed costs, including everything from the insurance, pilot salaries and ground operations to the back-office operations such as the finance department or the fees airlines pay to global distribution systems (GDSes) with each ticket transaction.

This should be where the ticket prices begin (again, it’s never as simple as that, but for the sake of this discussion, we’ll make the assumption).

In order to maximize the efficiency of operations, most airlines operate a hub and spoke model. This way, they don’t need to fly unpopular routes like Richmond to Syracuse that may have only a few passengers on the flight, a lot of empty seats, a lot of lost revenue and likely a net loss on the individual flight. Rather, most airlines have several large hubs through which most of their flights are routed. Examples include Atlanta (ATL) for Delta, Chicago O’Hare (ORD) for United, and Dallas-Fort Worth (DFW) for American.

So, for our example, an airline will fly a full flight from Richmond to a hub (let’s say Charlotte) with passengers heading to multiple destinations — not just Syracuse. They will then fly another plane to Syracuse from Charlotte with people whose travel started throughout the Southern portion of the country that morning.

This model, while requiring extra time, actually helps airlines keep ticket prices down, as each flight is more efficient. Yes, it still may be more expensive to fly from Richmond to Syracuse than from JFK to LAX, but it’s much cheaper than it otherwise would have been.

Last year airlines made $38 billion on ancillaries and this year fuel prices are as low as they have been for years. Can’t airlines afford a little loss to keep customers loyal and happy?

The short of the long of it is that airlines are now finally making profits that should allow them to stay ahead of broader market forces for the first time in decades. This comfortable position will allow them to actually reinvest in their products and hopefully make life more comfortable and enjoyable for passengers.

These profits are the result of ancillaries, stable and declining fuel prices — which makes flying cheaper — and several other factors, such as consolidation. All of this combines to make the airlines more attractive to investors, which allows them to raise equity through financial markets. In fact, this year is the first since the mid-1980s that airline stocks should actually outpace the S&P 500.

We are already seeing the outputs of these profits.

Airlines are upgrading their fleets, which isn’t cheap — an Airbus A380 can cost anywhere between $300 and $400 million, while even a Boeing 737 costs anywhere between $50 and $80 million.

Additionally, airlines are enhancing their traveler experience. For example, there are more planes with Wi-Fi, or in-seat entertainment. All of this is changing while prices remain relatively stable. That can’t be understated. Per the Airlines Reporting Corporation (ARC), agency ticket sales in 2015 have been down 1.4 percent through October, while transactions have been up 5.8 percent. From that data, it can be strongly inferred that prices are down year over year.

(As an aside, airline ticket costs have been largely in line with inflation since airlines were partially deregulated.)

The fact of the matter is that the average traveler expects to pay as little as possible and receive the highest possible service in a highly unstable and highly regulated industry. Should airlines be more customer-centric? Absolutely. And airline insiders tell me we’re finally at a point of that happening across the board because carriers are finally financially stable.

Share this story
Share on Twitter Share on LinkedIn Share on Facebook
About the Author
Lover of all things travel and hospitality, both from a personal and professional standpoint. A PR pro by day, I've represented a wide variety of clients in the travel industry since 2008. Sharing my passion for and knowledge of travel makes me happy. Cornell University graduate. Follow me on Twitter @HeatherLori7.
Posted in Don't Go There Tagged , , , , , ,

Underwritten by

Elliott Advocacy is underwritten by Cavalry Travel Insurance

Cavalry takes the worry of out travel by providing 24/7 access to medical and security professionals combined with the best medical evacuation and security extraction services. Cavalry gets you home safely when you need it most. Learn more at Cavalrytravelinsurance.com.

Elliott Advocacy is underwritten by Seven Corners

Seven Corners has helped customers all over the world with travel difficulties, big and small. As one of the few remaining privately owned travel insurance companies, Seven Corners provides insurance plans and 24/7 travel assistance services to more than a million people each year. Because we’re privately held, we can focus on the customer without the constraints that larger companies have. Visit Seven Corners to learn more.

Elliott Advocacy is underwritten by Sodexo North America

Sodexo North America Sodexo North America is part of a global, Fortune 500 company with a presence in 80 countries. Sodexo is a leading provider of integrated food, facilities management and other services that enhance organizational performance, contribute to local communities and improve quality of life for millions of customers in corporate, education, healthcare, senior living, sports and leisure, government and other environments daily. Learn more at Sodexoinsights.com.

Elliott Advocacy is underwritten by Travelex Insurance Services

Travelex Insurance Services is a leading travel insurance provider in the United States with over 55 years combined industry expertise of helping people dream, explore and travel with confidence. We offer comprehensive travel insurance plans with optional upgrades allowing travelers to customize the plans to fit their needs. Compare plans, get a quote and buy online at Travelexinsurance.com.

Elliott Advocacy is underwritten by AirHelp

AirHelp is the world’s leading flight delays compensation company, helping passengers apply for compensation following a delayed or canceled flight or when boarding has been denied. It is AirHelp’s mission to fight for passenger rights by holding airlines accountable for flights disruptions that are out of passengers’ control. AirHelp has already helped 5 million people, taking the stress out of applying for compensation and making it as hassle-free as possible for travelers around the world.

Elliott Advocacy is underwritten by Allianz Travel Insurance

The Allianz Travel Insurance company has built its reputation on partnering with agents all around the world to provide comprehensive travel insurance for their clients. Contact Allianz Travel Insurance for a comprehensive list of coverage.

Elliott Advocacy is underwritten by Chubb

Chubb is the world’s largest publicly traded property and casualty insurance company, and recognized as the premier provider of insurance for successful individuals and families in the U.S. and selected international markets, offering coverage for high-value automobile, homeowners, recreational marine/aviation, valuables and umbrella liability coverage. As an underwriting company, Chubb assesses, assumes and manages risk with insight and discipline, and combines the precision of craftsmanship with decades of experience to conceive, craft and deliver the best insurance coverage and services to individuals, families and business of all size.

Elliott Advocacy is underwritten by Enterprise Holdings

A family-owned, world-class portfolio of brands. A global network that spans across more than 85 countries. Some 97,000 dedicated team members sharing common values. And more than 1.9 million vehicles taking our customers wherever they need to go.

Elliott Advocacy is underwritten by Fareportal

Fareportal’s portfolio of brands, which include  CheapOair and  OneTravel, are dedicated to helping customers enjoy their trip. Whether you want to call, click, or use one of our travel apps, one thing is clear: We make it easy to take it easy.

Elliott Advocacy is underwritten by Insuremyrentalcar.com

An independent provider of low cost CDW/LDW insurance for use with rental cars. Up to $100,000 cover with no deductible. Policies available on a per day, per trip or per year basis. Also works with overseas rentals. Try  Insuremyrentalcar.comnow.

Elliott Advocacy is underwritten by InsureMyTrip

It’s simple. InsureMyTrip finds you the right travel insurance plan, every time. InsureMyTrip is the authority on travel insurance. Rated A+ for travel insurance by the Better Business Bureau. All travelers that purchase a policy through  InsureMyTrip have access to Anytime Advocates® for claims assistance.

Elliott Advocacy is underwritten by Mediacom Communications

The nation’s fifth-largest cable operator, serving the smaller cities and towns in the Midwest and Southern regions of the United States. We are a high-performance broadband, entertainment, and communications company that brings the power of modern technology and quality customer experience to life inside the connected home by combining ultra-fast gigabit speeds with personalized local and over-the-top entertainment choices that fit your lifestyle. Details at  Mediacomcable.com.

Elliott Advocacy is underwritten by SCOTTeVEST

An innovative apparel brand for people who want easy access to everything they need. For those who live for every second, SCOTTeVEST lets you maximize your life. Ditch the carry-on bag and pick up a  SCOTTeVEST.

Elliott Advocacy is underwritten by Virtuoso

The leading global network for luxury and experiential travel. This invitation-only organization comprises over 1,000 travel agency locations with 17,500 advisors in over 45 countries, and holds preferred relationships with 1,700 of the world’s finest travel companies. Virtuoso advisors collaborate with their clients to create personalized itineraries featuring exclusive perks, while also providing advice, access, advocacy, and accountability. For more information, visit  Virtuoso.com.

Elliott Advocacy is underwritten by VisitorsCoverage

As a company that is constantly striving to simplify travel insurance, VisitorsCoverage, is on a mission to help travelers make the better decisions about purchasing travel insurance, quickly. VisitorsCoverage has helped millions of travelers globally to buy the suitable travel insurance and explore the world with confidence. Get insurance for your next trip at  VisitorsCoverage. Lowest Price Guaranteed.

Elliott Advocacy is underwritten by MedjetAssist

Medjet is the premier global air-medical transport, travel security and crisis response membership program for travelers. With a MedjetAssist membership, if you become hospitalized more than 150 miles from home, we will get you from that unfamiliar hospital all the way home to the hospital you trust. All you ever pay is your membership fee. MedjetHorizon members add 24/7 personal security and crisis response benefits. Elliott.org readers enjoy discounted rates. Travel safer with  MedjetAssist.

Elliott Advocacy is underwritten by Southwest Airlines

The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit. We are committed to provide our Employees a stable work environment with equal opportunity for learning and personal growth.

Elliott Advocacy is underwritten by TravelInsurance.com

TravelInsurance.com makes it fast and easy to compare and buy travel insurance online from top rated providers. Our unbiased comparison engine allows travelers to read reviews, compare pricing and benefits and buy the right policy with a price guarantee, every time. Compare and buy travel insurance now at  TravelInsurance.com.

Elliott Advocacy is underwritten by Squaremouth

Squaremouth helps travelers easily and instantly compare travel insurance policies from all major providers. Only companies that meet the strict requirements of Squaremouth’s Zero Complaint Guarantee are available on the website. Compare policies on  Squaremouth.com to save over 70 percent on your next purchase.

Elliott Advocacy is underwritten by Travel Leaders Group

Travel Leaders Group is transforming travel through its progressive approach toward each unique travel experience. Travel Leaders Group assists millions of travelers through its leisure, business and network travel operations under a variety of diversified divisions and brands including All Aboard Travel, Andrew Harper Travel, Colletts Travel, Corporate Travel Services, CruCon Cruise Outlet, Cruise Specialists, Nexion, Protravel International, SinglesCruise.com, Travel Leaders Corporate, Travel Leaders Network and Tzell Travel Group, and its merger with ALTOUR. With more than 7,000 agency locations and 52,000 travel advisors, Travel Leaders Group ranks as one of the industry’s largest retail travel agency companies.

Elliott Advocacy is underwritten by Travelers United

If you’ve been mistreated by the airlines, Travelers United is your voice in Washington. Join the #1 travel advocacy organization working with Congress to improve and protect travelers. Plus, get $400 of annual benefits you can use for travel for only $29/year. Add your voice to ours. Make travel better.  Join today.