Flight Pricing

The rise of Online Travel Agencies, how Hotels, Flights, Cars, and Cruises are interconnected.

Learn more about the history of online travel (roughly 40,000 words)

Goal: make optimal purchasing decisions

DYNAMIC PRICING

  • Dynamic Pricing involves varying the price of goods or services based on variables such as increase in demand, seasons, time of the week or day, type of customer being targeted, competitor’s prices, availability and production costs.

  • There has been increased competition in the airline industry, with cheaper fares for customers, an increased number of services and an improved level of quality. In return the airline industry have established the dynamic pricing strategy in an attempt to, leverage supply and demand and ultimately maximize profits.

  • Airline companies use a dynamic pricing algorithm that takes many factors into account, things like supply and demand and historical trends.

SEGMENTED PRICING

  • Segmented Pricing, where customers are charged more based on the willingness to pay for a given service or product. Such as a business person willing to pay a high price to fly at a certain time, for faster service, higher quality or more features.

PEAK USER PRICING

  • Peak User Pricing, strategy used in the transportation industry, where the company charges the user a higher price to travel during peak times of the week as opposed to other times and on weekends.

  • Time of Purchase, where customers are charged a different price depending on when they buy. E.g. a customer charged a lower price when purchasing several months prior to a flight, as opposed to a higher price as it gets closer to the flight.

  • Finds flights with layovers in a traveler’s target destination.

  • Instead of flying the full itinerary, travelers get off at their layover and forego the last leg of the trip.

  • This strategy of traveling is oftentimes cheaper than flying directly to a final destination.

  • "Orbitz settled with Zaman in 2015, but United was persistent. Finally in May, a judge in Chicago dismissed United’s case due to the fact that Skiplagged isn’t in his jurisdiction. United sued in the state of Illinois, but Skiplagged is headquartered in New York. United decided not to pursue any further legal action."

  • What inspired Zaman: "In 2013, I was searching for flights from New York to Seattle and the cheapest option was $170 and had a layover in San Francisco. And then I searched New York to San Francisco and it was $300 and this was the same exact flight, New York to Seattle, so it sparked my curiosity and I discovered other things like two arbitrary one-ways can actually be cheaper than a round trip."

"Look, in a world where digital tools and online networks existed, problems that in the past had been really impossible to deal with would be reinvented. Solutions would be reinvented because the world was about to change." -- Jay Walker

PRICING FACTORS

  • historical data

  • the actual number of available seats on a flight

  • the distribution of ticket purchases over the lifetime of a fare

  • the price of the same flight a year ago

  • the historical average for that route

  • the average price over the whole period from the moment ticketing opens up to 2 months before the date of departure (prices exhibit little fluctuation with demand over that time, which must mean that the offered fare is a reasonable one for the flight)

  • characteristics of the carrier (size, business model – i.e. low-cost or traditional)

  • date/time of flight, and of return leg, if applicable (date – especially if it's close to a major holiday, time of day, day of week – e.g. the majority of business flight itineraries is Monday to Friday)

  • duration of stay (for round-trip flights)

  • size/model of aircraft (a proxy for flying efficiency) • whether the destination is international or domestic

  • flight distance (proxy for operating cost, and potentially for buyers' types)

  • competition on the same airport (market share of airline in terms of passengers – especially whether it is the dominant carrier on the airport, competition index – e.g. HHI, whether there are any low-cost competitors)

  • competition on the same route (ratio of offered seats over all similar flights) • itinerary characteristics (number of stops, layover duration)

  • size of departure/arrival airport (total daily passengers, total number of connecting airports)

  • market size of departure/arrival city (city size, population, income per capita)

  • number of unsold seats (and recent fluctuations on that number), as a measure of demand

  • state of competing options on the same route (number of available seats on similar flights, current price for those flights, recent price fluctuations)

  • date/time of booking, especially days left until departure

  • recent price for the same ticket, and recent fluctuations of the price

If every travel website says that they offer the best deals, so which website has the best deal then? 🤔

HOW

  • Bing Travel

    • evolved from the work in To Buy or Not to Buy that perform this kind of prediction, but their models are not made public.

  • Skiplagged

    • helps passengers find loopholes for cheaper tickets. Find flights the airlines don’t want you to see.

  • Priceline

    • Get our lowest prices on hotels, flights, and rental cars when you bundle it all in a single booking.

    • The problem we were working on was how can a seller of perishable inventory discount their product to clear the market without disrupting the retail price for their own product? In other words, how do you have a sale and at the same time not hurt your regular sales, your regular customers. It was good for any perishable products. The question is if you had inventory that was perishing, networks would allow you to advertise that inventory in a unique and discreet ways. We knew that was coming but the problem was discounting it would only have disrupted your old retail prices.

    • Because there is a line which is the current market price for your product, the price line and you can't go below that line without destroying your own retail prices. Nobody is paying at retail if you're having a sale. That was the problem we were trying to solve.

  • Booking.com

    • Geert-Jan Bruinsma founded Booking.com's predecessor company, Bookings.nl in November 1996 a few months after graduating Universiteit Twente in the Netherlands and discovering the Internet.

    • The Priceline Group acquired it in 2005, combined it with Active Hotels, and rebranded it as Booking.com.

  • Momondo

    • Prices from airlines and online travel agents can be updated multiple times per day and availability fluctuates constantly.

    • As we don't set prices ourselves, it is not possible for us to guarantee prices from airlines, hotels and travel agents.

    • We make every effort to ensure the prices found on momondo are accurate and up to date, but prices can change frequently with availability.

    • Occasionally there can also be a problem with the prices being sent to us by a provider (hotel, airline or car rental company), or there can be technical reasons why the price is not represented accurately.

  • HotelTonight

TOOLS

  • KVSTool - offer more direct access to the information published on the reservation systems, in a format that is more convenient to parse.

OTHERS

  • Why do travel websites include flights + hotels + cars + bundles + even cruises?

    • "We were looking for a flight from Chicago to London, and the lowest fare we found for our Monday – Friday itinerary was $1,855 on the British Airways website. But when we clicked on the “flight + car” package option, the total price dropped to $1,044."

    • "We called one of BA’s agents, who confirmed that, indeed, you can get this kind of deal routinely by booking a package. “When we’re selling holidays, we’re a tour operator and we have preferential rates, which we’re able to pass … on to the consumer,” said Tracy Long of British Airways Holidays. “If you’re booking anything more than just a flight, you’re able to take advantage of deeper discounts.”"

    • "Consider a roundtrip flight on Virgin Atlantic from New York to London that we sampled at $1,855. When we used the Virgin Vacations search to include four nights’ hotel and a four-day car rental, we got the entire package from $1,864 per person — just $9 more for a hotel and rental car as well as a flight."

    • "Using an aggregate site such as Expedia.com can save you money as well. A flight on Air Berlin from Miami to Helsinki would set us back $1,268. On Expedia.com, we’d pay $1,249 — $19 less — for a flight plus four nights in a three-star hotel."

  • Scott's Cheap Flights

    • An email thread service that spots cheap or mistake fares that are mostly international as they come up

    • Pre-vetted by Flight Experts - every deal has been vetted by our human Flight Experts to ensure it's an amazing deal.

  • Hopper

    • Allows users to search and monitor flight prices and tells them when it is the best time to buy.

    • Mobile only (make it harder for others to scrape the data in a closed environment) and data focused

    • Predicts prices with 95% accuracy up to 1 year in advance.

    • Goal is to decrease the price of travel overall.

RESEARCH PAPERS

"Speed Wins." -- Steve Kaufer, CEO of TrapAdvisor

CURRENT ROADBLOCKS

  1. lack of relevant/targeted historical data unless you collect data manually over a period of time