Wirraway
19th Jun 2004, 16:24
Sun "Melbourne Age"
Mixing up tickets is a fare game
By Daniel Ziffer
June 20, 2004
Airline passengers may eat the same meals and arrive at the same destination, but they will probably pay a different amount for their domestic flight to the people sitting in the same cabin, according to industry experts.
Air fares are determined by managing the mix of tickets - which vary by price and conditions - a process that creates myriad ticketing options on any given flight.
"I can understand how people do get confused about it, but on the same token, people do pay a premium for flexibility," said Paul Scurrah, general manager of products at Flight Centre.
Conditions relating to the flexibility of tickets, particularly the ability to change or cancel them, affects their price. Airlines attempt to encourage early booking by providing discount fares with restricted flexibility with a mix of higher fares that have more options.
As the departure date approaches, airlines alter the mix as they try to wring the most value out of the fixed number of seats leaving the ground. "The closer to travel date you get, the less discount seats are available, said Mr Scurrah.
"You still can get discount seats up until the last day, but there's limited flexibility. If you do make changes, you pay for the privilege."
Qantas, for example, has four fare "families" and each has several levels. "Every flight we operate from Melbourne to Sydney has a mix of all of those fares," said Will Owens, head of domestic pricing and yield for Qantas.
The airline uses a flight's financial performance records and information from the travel market to calculate the mix, he said.
Some flights, including business peaks such as Monday 7am, are weighted towards more expensive and flexible fares. Others, such as Saturday and midweek afternoon flights, are cheaper but suffer more restrictions.
For consumers, personal flexibility is crucial in finding cheaper fares. Peak-hour flights booked a month in advance can appear almost identical, but try to change times and conditions and disparities emerge.
For example, on Friday, July 23, the 7.15am Melbourne to Sydney flights on Qantas and Virgin Blue are $100 and $105 respectively. But a Qantas flight 15 minutes later is $39 more, while a Virgin Blue flight 30 minutes later, at 7.45am, is only $85.
Dean Maidment, business development manager of internet retailer Webjet, said the system was confusing to consumers.
"We look at it, from a consumer's point of view, as (a seat) in economy class. But it's not," he said.
On a typical flight there are about eight different segments in the economy cabin, with different restrictions applying to on each of them. "You'll go from fully flexible to basically one-way and no changes permitted on that class of ticket," he said.
It all comes down to supply and demand, said Virgin Blue's head of commercial distribution, Tim Jordan.
"Where there is strong demand, there are fewer cheaper seats available. There's still likely to be some of the cheap seats available but there's likely to be less as an overall proportion," he said.
"Generally the earlier you book the more likelihood of tying down a better and cheaper deal."
The complex formulas under-pinning the mix are called yield management. An airline will set a financial target that it wants to achieve for a flight. Using the expected number of people flying at that time, it calculates seat charges. If the flight is selling slowly, the airline might release cheap seats to stimulate interest, before needing to sell some seats above their average price (probably closer to the travel date) to make their target.
"That's the skill," said Ian Myles, a Macquarie Equities analyst. Airlines were aiming to increase their revenue, he said, not necessarily the ticket price or the number of seats sold.
The main outcome was that it was advantageous for airlines to increase ticket prices as departure times neared because the people who typically bought tickets late were not as affected by the higher cost.
"But if you get too cute on it, you won't sell any tickets," Mr Myles said.
It was all done to encourage strong passenger numbers, said Simon Westaway, spokesman for new budget airline Jetstar. "You offer your cheapest fares the furthest out from the time of departure of an aircraft," he said.
But Mr Owens of Qantas noted the careful balance required between raising prices and filling seats. A flight that fills a week before departure represents missed opportunities, as is a flight with 50 empty seats.
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Mixing up tickets is a fare game
By Daniel Ziffer
June 20, 2004
Airline passengers may eat the same meals and arrive at the same destination, but they will probably pay a different amount for their domestic flight to the people sitting in the same cabin, according to industry experts.
Air fares are determined by managing the mix of tickets - which vary by price and conditions - a process that creates myriad ticketing options on any given flight.
"I can understand how people do get confused about it, but on the same token, people do pay a premium for flexibility," said Paul Scurrah, general manager of products at Flight Centre.
Conditions relating to the flexibility of tickets, particularly the ability to change or cancel them, affects their price. Airlines attempt to encourage early booking by providing discount fares with restricted flexibility with a mix of higher fares that have more options.
As the departure date approaches, airlines alter the mix as they try to wring the most value out of the fixed number of seats leaving the ground. "The closer to travel date you get, the less discount seats are available, said Mr Scurrah.
"You still can get discount seats up until the last day, but there's limited flexibility. If you do make changes, you pay for the privilege."
Qantas, for example, has four fare "families" and each has several levels. "Every flight we operate from Melbourne to Sydney has a mix of all of those fares," said Will Owens, head of domestic pricing and yield for Qantas.
The airline uses a flight's financial performance records and information from the travel market to calculate the mix, he said.
Some flights, including business peaks such as Monday 7am, are weighted towards more expensive and flexible fares. Others, such as Saturday and midweek afternoon flights, are cheaper but suffer more restrictions.
For consumers, personal flexibility is crucial in finding cheaper fares. Peak-hour flights booked a month in advance can appear almost identical, but try to change times and conditions and disparities emerge.
For example, on Friday, July 23, the 7.15am Melbourne to Sydney flights on Qantas and Virgin Blue are $100 and $105 respectively. But a Qantas flight 15 minutes later is $39 more, while a Virgin Blue flight 30 minutes later, at 7.45am, is only $85.
Dean Maidment, business development manager of internet retailer Webjet, said the system was confusing to consumers.
"We look at it, from a consumer's point of view, as (a seat) in economy class. But it's not," he said.
On a typical flight there are about eight different segments in the economy cabin, with different restrictions applying to on each of them. "You'll go from fully flexible to basically one-way and no changes permitted on that class of ticket," he said.
It all comes down to supply and demand, said Virgin Blue's head of commercial distribution, Tim Jordan.
"Where there is strong demand, there are fewer cheaper seats available. There's still likely to be some of the cheap seats available but there's likely to be less as an overall proportion," he said.
"Generally the earlier you book the more likelihood of tying down a better and cheaper deal."
The complex formulas under-pinning the mix are called yield management. An airline will set a financial target that it wants to achieve for a flight. Using the expected number of people flying at that time, it calculates seat charges. If the flight is selling slowly, the airline might release cheap seats to stimulate interest, before needing to sell some seats above their average price (probably closer to the travel date) to make their target.
"That's the skill," said Ian Myles, a Macquarie Equities analyst. Airlines were aiming to increase their revenue, he said, not necessarily the ticket price or the number of seats sold.
The main outcome was that it was advantageous for airlines to increase ticket prices as departure times neared because the people who typically bought tickets late were not as affected by the higher cost.
"But if you get too cute on it, you won't sell any tickets," Mr Myles said.
It was all done to encourage strong passenger numbers, said Simon Westaway, spokesman for new budget airline Jetstar. "You offer your cheapest fares the furthest out from the time of departure of an aircraft," he said.
But Mr Owens of Qantas noted the careful balance required between raising prices and filling seats. A flight that fills a week before departure represents missed opportunities, as is a flight with 50 empty seats.
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