Why Airfare Changes Frequently

Want to drive yourself nuts on your next flight?  Ask 10 of your fellow passengers how much they paid for their ticket  You’ll likely get 10 different answers and, odds are, at least some of them will be lower than yours.
 
Why are airfares like this?  Why is checking a fare like playing the stock market – up one day, down the next, with seemingly no rhyme or reason?  Do airlines just pick fares out of a hat each day, or is there really a method to the apparent madness?
 
We’ll try to shed some light on these questions here to help you understand how airlines price their product.  
 
 
 
The Airline’s Dilemma
 
Let’s say you’re an airline.  You have a plane with 100 seats on it that you’re going to fly from Point A to Point B.  There will be some people – rich people, business people, people who otherwise absolutely have to get to Point B on that day and time – who are willing to pay a ton of money for a seat on that plane.  There will be a much larger group of people – budget conscious individuals who would love to travel but don’t necessarily need to – who would also be willing to buy a ticket on this flight — but only if the price is affordable.
 
The airline’s dilemma is that if they set the price per seat at the maximum price that the rich/business people would pay, they would generate a lot of revenue from those passengers but they would be flying planes with a lot of empty seats (a wasted opportunity for even more revenue).  On the other hand, if they fill the plane by charging fares low enough to attract all the discretionary travelers, they will be giving seats to the rich/business group for far less than those individuals would have been willing to pay (and the thought of that makes the airlines cringe).
 
From an airline standpoint, the goal is to get as much as they possibly can for each seat on the plane.  If 10 people are willing to pay $1000, they would love to sell 10 of the 100 seats for that price;  if there are another 20 people willing to pay $500, then they’d sell 20 more seats at the $500 rate; and so on until the plane is full.
 
But how can they do that?  An economist will tell that you if you have a product, you price that product at the point where the supply curve and the demand curve intersect — with the assumption, of course, that you have to come up a single price.  Even if you’re not an economist, you know that just because some people may be willing to pay $10 for a Big Mac and others only $.50 doesn’t mean McDonalds is going to charge everyone a different price.  Ultimately, they just settle on somewhere in the middle.
 
The airlines want to be able to have their cake and eat it, too, and they go to great lengths to make that possible.  They employ a very high-tech strategy called yield management which intentionally aims to charge different prices to different passengers in order to maximize the total revenue collected for each departing flight.  This makes it your goal to understand the system, so as not to become a victim of it.
 
Same Seat, Different Fares
 
When you ask “What fare will I pay for this flight?” a more appropriate question really might be “Which fare will I pay for this flight?”  The reality is: airlines never just have one fare – they have several, even dozens, of fares for each seat and they employ sophisticated techniques to maximize the number of people who get stuck paying the higher of those fares.
 
Confused yet?  Here’s a real-life example.  United Airlines currently publishes 17 different economy class fares for flights between Los Angeles and Chicago.  These fares start at $124 one way, but there are also fares of $129, $159, $179, $197, etc. all the way up to $1178!  The highest fare is almost 10 times more expensive than the lowest fare even though, no matter which price you pay, you’ll end up with the exact same seat (economy) , the exact same food (or lack thereof), and the exact same service.  (To be the fair, the very highest fares do usually include a few extra, but relatively minimal, perks like being refundable, easier/cheaper to change, first dibs at the best seats on the plane, etc. but nothing that substantially changes what you get for the fare that you pay.)
 
Knowing that a given seat on a United Airlines flight to Chicago may cost anywhere from $124 to $1178, you would naturally say “I’ll take the $124 option” but, of course, the airlines don’t make it that easy.  Their goal is to funnel every would-be traveler into the highest “fare bucket” that they can.  They do that, first, by adding restrictions to the lowest fares that limit how many people can take advantage of them.  For example, the $124 fare to Chicago requires you to purchase it 21 days in advance and to fly on Tuesdays, Wednesdays, and Saturdays (the least popular travel days, where it’s harder to sell seats at higher fares).  Other fares have 14 day advance purchase requirements and, still others, 7 day.  Some fares are blacked out around holiday and other peak travel times.  Generally speaking, the lower the fare, the more restrictions there will be on it, and the fewer flights that that fare will be offered on.
 
But just as important is the fact that, even if a fare is offered on a certain flight, the airlines will limit the number of seats available at that fare level.  For example, United may say that on a given flight they will only sell up to 10 seats at the $124 fare, 15 seats at the $129 fare, 20 seats at the $159 rate, etc.  From a practical standpoint, this is the probably the most important point to understand about airline pricing.  As more and more seats are booked on a flight, more and more fare levels will be “closed out” so the end result is that additional passengers will be stuck paying higher fares.
 
It’s actually even more complicated in practice.  Remember when we said the airlines use sophisticated yield management processes to maximize the revenue on each flight?  Well, they actually have computer programs that are constantly monitoring flights, analyzing booking patterns, and in real-time changing the number of seats available at each fare level.  If a flight is booking up faster than expected, an airline may decrease the number of seats available at some of their lowest fare levels, or wipe them all out altogether.  If a flight is not selling well, suddenly more seats may appear at fare levels that were previously “sold out”.

Why Fares Change all the Time
 
This is why fares change all the time.  If you see a different fare today than you saw yesterday, the issue is probably not that the airline made a conscious decision to raise or lower their prices — at least not directly.  Instead, it’s likely that seats in the lowest fare categories sold out or were closed out.  For instance, if there are 3 $124 seats left on our example flight to Chicago and someone grabs them, the lowest fare available will change to $129.  If United’s yield management system looks at the flight and says “Wow, bookings are strong”, it may choose to close the $129 level, too.  Then the fare will appear to “jump” to $159.  But what if two days later 2 families of 4 booked on the flight decide to cancel?  The same system might say “Uh-oh, we have way too many empty seats” and decide to open the $124 and $129 fare levels back up.  This process happens continuously until hours before departure.  Generally, over time fares on a particular flight will get higher and higher as more and more seats gets booked and more and more fare levels get closed.   But there are short term blips all the time and, if you look at it hour to hour or day to day, there will be moments when fares temporarily dip before heading back up once new bookings come in.  This entire process is extremely dynamic as at any given time there are hundreds of thousands of shoppers looking for flights and making reservations — and each reservation may have repercussions on the fares paid by subsequent travelers on the same flights.
 
Fare Sales

What about fare sales?  Airlines are constantly promoting one sale or another and you may be wondering how fare sales play into all of this.  In fact, if you subscribe to the e-mail alerts from any online travel site, you probably read on an almost daily basis “Breaking News” of new sales.
 
The truth is, the real news would be if there were no sales going on.  To the airlines, almost everything is a “sale”.  Returning to our United Airlines Los Angeles to Chicago example, of those 17 fares, about half of them are considered to be “sale” fares.  A “sale” fare really just means that it requires booking or traveling between a specified time period.  Some sale fares are really good deals;  others are worthwhile only because they provide decent fares on dates or times that previously weren’t eligible for the lowest fares; and still others are just plain meaningless because they are no better than one or more other fares already in the market.  (Why the airlines still bother to promote them is anyone’s guess.)
 
But what’s important to remember about sale fares is that, if they are really lower than the other fares in the market, they will be even more limited from an inventory standpoint.  So, for example, if United introduces a 3 day sale fare to Chicago for $99, it will almost definitely not be offered on flights where the existing $124 fare has already been sold out.  In practical terms, this means that when sales hit the market, they will usually only be obtainable on flights that are pretty wide open (mean lot of seats on that flights are still available).
 

After reading the above , we hope now you have a better understanding why airlines fares changes so frequently. That’s why Online sites and Travel Agents say “FARE NOT GUARANTEED UNLESS TICKETTED”.
 
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(The above material has been compiled from different sources for your understanding only. We are not responsible for any decision you make based on the above)