Buying your ticket on a Tuesday, searching via your browser’s incognito mode or using a VPN to pretend you live in a different location – if you try to snag cheaper flights using popular hacks like these, it’s largely a waste of your time.
That’s according to a new study that examined the structure and processes behind how prices are set at a major U.S airline.
The pricing system that the research uncovered, which is said to be representative of airlines around the world, is at odds with what most travellers assume it to be.
The study was co-authored by Olivia Natan of Berkeley Haas School of Business, who says: ‘There are so many hacks out there for finding cheaper airline tickets. But our data shows many of these beliefs are wrong.’
Natan, who conducted the research alongside academics from the University of Chicago, Yale, and the University of Texas at Austin, adds: ‘We initially didn’t know how to rationalize the things we were seeing.’
Trying to snag cheaper flights using popular hacks – such as booking on a Tuesday – is largely a waste of your time, a new study has revealed
That said, there is one silver lining for bargain-hunting travellers – the study reveals that there is a set window of booking time to avoid if you want to secure better value fares. Here is how airlines price their flights…
SUBSTITUTING CONVENIENCE FOR PRICE
Airlines don’t consider how customers try and find a balance between convenience and price with their flights – sometimes sacrificing convenience for a cheaper ticket, the study found.
When a traveller is comparing flights, even if one flight is very convenient in terms of departure time or departure airport, they might be inclined to opt for a less convenient flight if it’s slightly cheaper.
However, Natan says that ‘airlines don’t consider this kind of substitution’. She explains that the airlines think about the prices of seats on each individual flight rather than the total seats sold in a day, ‘even though changing the price on one flight will affect the way people think about all their options’.
A SMALL MENU OF PRE-SET PRICES
The study found that surprisingly, airlines don’t incorporate the prices of their competitors in their automated price-setting – meaning that if one carrier cuts its prices, rival airlines won’t necessarily follow suit.
Instead, airlines have a fixed and relatively small number of prices that they assign to tickets on each flight, operating with large gaps between each possible price —sometimes upwards of £80 ($100). The study explains that the airline may sell the first 30 economy tickets at the lowest price, and then the next 30 tickets at the next possible price, and so on.
The researchers found that even if the airline would like to increase the price of a ticket by £80 ($100) they only do so about 20 per cent of the time, in order for the the figure to fit into this menu of pre-set prices.
Airlines have a fixed and relatively small number of prices that they assign to tickets on each flight, the research finds
Natan says: ‘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.’
The study explains that this system emerged from an industry alliance to facilitate inventory management, with other businesses in the travel sector, like hotel rooms, cruises, trains, and car rentals, doing the same.
The study notes that some airlines are starting to experiment with what’s known as ‘continuous revenue management’, which would, for instance, assign 100 different prices to a flight with 100 seats. Natan says: ‘That would make pricing significantly more variable, but even that would not be the kind of targeting that many consumers assume airlines use.’
LACK OF COORDINATION WITHIN THE AIRLINE
A ‘strange’ lack of coordination between departments within the airline also determines the prices of flights, the study found.
It discovered that airlines’ pricing teams generally don’t raise prices, even if the increase assures an increase in revenue.
Natan says: ‘We talked to all of these managers who said the pricing team doesn’t know what it’s doing.’ She says that the team could make more money if it started ‘selling fewer tickets at higher prices’.
Natan says: ‘In practice, they seem to be choosing the menu of prices somewhat arbitrarily.’
Flight prices go up significantly 21, 14, and seven days before a flight, the study reveals
However, the study found that the revenue management team corrects much of this underpricing before tickets go on sale, by making ‘demand forecasts’ that determine final prices. The study, which was published in The Quarterly Journal of Economics, found that these forecasts are routinely inflated, reducing the number of underpriced tickets shown to consumers by roughly 60 per cent.
Summing it up, Natan says: ‘It’s very strange. It could simply be a consequence of teams from different departments not communicating.’ Natan notes that two other possibilities as to why airlines don’t maximize short-term revenue could be either to build customer loyalty or to avoid regulatory scrutiny.
WHEN TO BOOK FLIGHTS
In the coming years, Natan says, airlines may start to adopt more dynamic pricing platforms, and non-business travellers may benefit from these changes. But for now, the hunt for a hack to find lower fares is ‘largely futile’, the study reveals.
However, the study has found that it’s wise not to wait until the last minute to book flights.
Natan says: ‘What I can say is that prices do go up significantly 21, 14, and seven days before a flight. Just buy your ticket before then.’
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