UK/US fares

[malcolm380]

while deciding whether to visit my son in the UK or fly him here to NY state, I go to the United Airlines booking engine and discover that, using "my dates are flexible" and choosing the month of September, the cost of EWR-LHR-EWR round-trips are in the order of $200 - $250 more expensive than the LHR-EWR-LHR round trip. Can anyone explain why US originating roundtrips are consistently more expensive than the same flights originating in the UK?

[fa2fi]

It's rare that it's not more expensive departing from UK as opposed to the other way round. If you'd ask UA I'd imagine their response would be that it's down to supply and demand and 'dynamic pricing'. But who knows.

[PAXboy]

Fares are almost always imbalanced. We've had various examples crop up in this forum and the main explanation is 'What the market will take' If currency is trading high that might encourage those people to travel as they can buy more once they get to the destination, so you can up the price of the fare. Or it might be the reverse. You may be sure that the airlines know what they can get, because that's their business.

However, in this forum, we have found the answer is usually a shrug of the shoulders. You look at the fares and you decide which one to book.

There are other factors and you might want to look at the same dates for American, Delta, BA, Virgin and the others via various multi-carrier search sites. Also, consider if you have the funds in the UK and are booking from an I.P. adress in the UK not the USA? Also, if the traveller is young, they might not mind a 'dog leg' via Dublin, Iceland, Toronto or Boston etc. money can be saved.

[mixture]

Interesting that, even if we take off airline limitations and look at any airline...

LHR-EWR-LHR ... cheapest £439 in september
EWR-LHR-EWR .... cheapest £647 in september

I think its a simple case of Supply and Demand.... if you look at fares in October, for example, the spread narrows (e.g. there are a few for £425 EWR-LHR-EWR).

I suspect its down to the fact that its September... shoulder period between the summer silly season and off-peak. September's probably still quite a busy time for the airlines.

Your best bet is to do a one-stop via the mainland (i.e via CDG, AMS or FRA). I also know people who take Icelandair via KEF... that's quite cheap apparently !

[SeenItAll]

A few possible answers.

1. Given that UA is a USA airline, it is more well-known in the US than in the UK. This may allow it to charge a premium for US-originating flights vs. UK-originating ones.

2. People originate from EWR because it is a more convenient airport for them (i.e., people who live in New Jersey). People originate from JFK because it is a more convenient airport for them (i.e., people who live on Long Island). These preferences allows UA to charge a premium for US-originated flights. In contrast, people coming to the U.S. from the UK typically don't care whether they arrive at EWR or JFK. They are just going to take public transportation into NYC.

[Metro man]

Try a search with Kayak or Skyscanner using flexible dates and all airports for the cities involved. This should show the cheapest fare and let you decide the most suitable one.

In the US, Miami - Kansas - Miami is more expensive than Kansas - Miami - Kansas. The reason is that someone going from Kansas to Miami is going on holiday and can easily switch to another destination if he doesn't like the price where as someone going from Miami to Kansas is going there for a specific reason and can't go elsewhere.

[Ancient Observer]

Most airlines are keen to get pax who originate outside the country of the airline. So they have a bias towards cheaper flights. It is like flyer miles schemes - they are often (but not always) better for "foreigners".

In the past, the cheapest way for me to fly on BA to the USA was to buy LHR-BRU return, and then BRU-LHR-wherever return.
Daft, but that is how it used to work. BA were very keen to get folk from BRU to use LHR as a hub.

Even tho the Belgian airlines were not exactly competition!

[ExXB]

AO, it isn't actually daft if you look at the big picture.

The network airlines generally sell flights up to 360 days out. Based on histories as each flight comes on-line they will have estimated how many 'local' sales and how many 'returning' passengers they expect. In each class of service, the difference between the aircraft capacity and the expected passenger load, is an opportunity.

They expect all of those remaining seats to be empty, so any revenue they can get for them, for example from a passenger originating in BRU, is gravy. Of course they have to factor in the demand for the 'married' sectors (in your example BRU-LHR and LHR-BRU) to ensure they are not displacing passengers on those flights. They also need to look at if other origins (for example GVA) might give them higher total revenue. A transatlantic flight ex LHR could be 'sold-out' for BRU originating passengers, but available for GVA originating passengers if the numbers are right. This does happen.

So when they are looking at pricing BRU/GVA-wherever via LHR they need to set it at the highest value that they believe, on the day, will still attract a sale. This will often be lower than the prices to/from their hub - but remember this is all gravy. In most markets they can't set it at, or higher than non-stop flights offered locally, they need to be lower. How much is dependant on local market conditions.

The game is to sell every seat on every plane. And selling beyond hub for less that the hub is irrelevant to the airline. It's gravy!

Oh, I mentioned they do this analysis when the flight first comes on-line. It isn't just then. They constantly analyse and reanalyse ever flight in their network multiple times every day right up to departure time. Almost all of it is automated, with some human intervention, but the objective remains: fill that plane with the maximum amount of revenue ...

[luigi1]

ERW-LHR-ERW and LHR-ERW-LHR should be considered two different products (call one apple and the other pear, they are both still fruits). their prices don't have to be the same and many factors come into play when determining the price.

[Hobo]

ExXB is right.

The published fare is that which you see on the screen at the time of your enquiry. If you look again a few hours or minutes later, the fare may have changed. It could have gone up or down as determined by the revenue management computer.


Revenue management is a very complex subject, and there is one such revenue management computer, based north of Nice, which is used by several airlines, maybe UA, cruise lines, hotels and other tourism related businesses.


On occasion, you may even be able to buy a premium cabin ticket for less than an economy ticket.

It is the nature of the thing.

[PAXboy]

All good factors that mentioned. Others include;


Time of year/season
Convetions/exhibitions being held in destination
Carrier wants to build the route - so drops prices
Carrier wants to stop the route - so raises prices
Carrier part of a promotion by city/region.country
Competition with direct/indirect flights
etc.

Of course, not all of those apply to NYC, which has the other problem of over supply of capacity, which also skews the the pricing.

[ExXB]

… and Heathrow commands a premium over Gatwick.

On a slightly different theme ask yourself: Which passenger is more likely to pay a higher fare, a frequent flyer club member - or a non-member.

Loyalty programmes are for the benefit of the airlines, not always the punter.

[ExXB]

On occasion, you may even be able to buy a premium cabin ticket for less than an economy ticket.

I was travelling on short notice from GVA to Canberra. At the time we were instructed to use BA. Business had filled up and only full J fares were available. I happened to notice that discounted F was cheaper.

Devil of a time getting management to approve it, but they did finally, even though the travel department was dead against any exceptions to their rules. :ugh: As I was going out and back in less than a week it was well appreciated. :ok:

[llondel]

Devil of a time getting management to approve it, but they did finally, even though the travel department was dead against any exceptions to their rules.

I guess I've been lucky. Generally, pointing out that what I want to do will save them money will result in permission. Make sure all the paperwork is in order though, in case they find a way to make their way cheaper.

[Heathrow Harry]

I've always done it without asking but been careful to save the paperwork showing them how much I saved the Company

Not always popular but they just have to sit and fume............. any "escallation" will finish up with them in the hot seat as to why they couldn't find the best deal..................

[PAXboy]

One of the events that got me interested in finding my own deals was when one company's agent put me in Y because all the C was above the 'limit'. I discovered (easily) that they paid more to put me in Y than I could have put me in C. :*

[Metro man]

If I travel on business the company works out what it will cost them and if I want any alteration to the itinerary I can have it if I pay the difference. The last time I travelled I came up with much lower fare for the original itinerary than the company did, but was quite happy to pay the smaller difference for the alterations I wanted based on the higher fare they came up with.:ok:

[PAXboy]

In the last recession (there are so many ...) one company I knew then said that it would pay the C fare but if staff travelled Y, then they would split the saving 50/50 with the staff. it proved popular.

[ExXB]

Peter, your theory could apply to a US based airline but a British airline would likely do the opposite.

Many years ago prices were equivalent in both directions, but is no longer the case.

[mixture]

I might be well off the mark here

Yes. Quite likely a million miles off the mark.

Any airline of any respectable size anywhere in the world most likely has hedging strategies in place for forex and other risks (e.g. oil).

If you think about it, ticket income is only a tiny proportion of forex risk an airline is exposed to (e.g. they've got landing fees, local staff etc. etc. etc. etc.).

Also if you think about it, you can buy airline tickets 12 months in advance. Without a hedging strategy in place, airlines would be potentially exposing themselves to a lot of forex risk.

Hence its an almost guaranteed fact that they hedge the risk on the financial markets through derivatives trading.

And yes, if you think the word "hedge" sounds familiar... yes, the concept is the same as what a Hedge Fund does. Except the goal at a fund is to achieve growth. The goal at an airline would be risk management and capital preservation, if you achieve a little profit on the side then great, but its not the primary goal for their traders. Hence the hedge funds would employ higher risk strategies than airlines.


For example (a very basic example, as strategies can be complex) :

http://s18.postimg.org/o3644hm2x/Forex.png

If I were doing a spot (i.e exchange today, right now) transaction, I'd be selling GBP to get USD, so I'd be using today's spot Bid price for that (not shown above, currently about 1.68277)

However, if my research and analysis strongly suggested the rates would rise in six months time, I could enter into a 6 month dated futures contract to buy GBP at today's quoted six month foreword asking price (shown above) of 1.68032, and because the whole thing is done on a leveraged basis I wouldn't need to stump up the million quid until six months down the line.... I can lock in the rate at zero cost today.

You may note that I've bought GBP which is the opposite of what I wanted, i.e. selling to get USD.

But that's the whole point. If all goes according to plan and the futures contract has gone up in value, then I've made a profit on that hedge. The profit on that hedge covers the act of me now being exposed to the unfavourable spot rates six months down the line. I would dispose of the futures contract prior to expiry and hence I would take the profit and not have to go through with the futures contract, and would undertake the spot transaction I wanted in the first place (selling GBP). That spot transaction would effectively take place at the rate I locked in six months prior (1.67992 shown above), because although I would be doing the spot transaction at an unfavourable rate, the profit from the hedge would cover the difference.

Hope that makes some sense, and hope my swift write-up hasn't lead to too many errors in my description !

P.S. Basic video I've found on eweToob about derivatives for those who want more background :

Wjlw7ZpZVK4

[PAXboy]

mixture
Gordon Bennett :uhoh:

Thank you, I think ... but I've just pushed the call bell and asked the cabin crew for an ice bucket to soak my head in. :\

[WHBM]

Let me run through this one again.

Setting the revenue side of a business has nothing, repeat nothing, to do with costs. It is about determining what is the maximum amount of revenue you can get.

The more sophisticated businesses (and in revenue/yield management airlines are generally up at the top there) will then try and "segment" their market, to try and get the maximum amount each will pay. It's too difficult to do this for each potential traveller individually, but yield management does try to come close.

So if you can charge more where booked from the London end than from the New York end, so be it. If people in London paying in pounds will pay more than those paying in dollars, that is what you do.

If I pony up at LHR 5 minutes before things close and offer £10 to go to New York, you may feel that's £10 to the good if there are empty seats. However, this leads to an expectation that it can be done again, and those who would have paid the higher fare may now follow this strategy. This is known as "revenue dilution", where a lower-priced offer doesn't only attract new passengers but also diverts to these tickets those who would have paid a higher fare.

If BA find they can get £800 return from London to New York, they may find they can only get £400 from someone doing Madrid-London-New York. Likewise Iberia may find they can get £800 for Madrid to New York, but only get £400 from someone doing London-Madrid-New York. This is why such inconvenient connections can come in cheaper, although the seat costs of the two-sector flights are obviously greater.

Costs only come into it at the very end, where you find that despite your best revenue endeavours your business has made a loss, although allocating the revenue for connecting flights across the different sectors is a whole discussion point in itself for the accountants - it was one of the things that led to the final financial downfall of BMI, all those Star Alliance connecting passengers through London from different long-haul carriers, who kept most of the revenue.

[mixture]

Setting the revenue side of a business has nothing, repeat nothing, to do with costs. It is about determining what is the maximum amount of revenue you can get.

Well, it does a little bit. :cool:

Afterall, if I'm standing on a street corner offering you a hotdog, there's absolutely no reason for me to even contemplate the possibility of charging you a million bucks for it.

Unless you're deliberately setting out in the business of screwing people by picking numbers out of your hat, you need some idea of costs to give you an idea of the sort of ballpark area of minimum price you need to set.

Once you've got an idea of minimums, sure you can play around like the airlines do at selling the same product for different prices to different punters.... but you still need to know where that base is !

[ExXB]

The perfect price is the price the punter is prepared to pay. Cost of production is irrelevant.

I can imagine in some circumstances somebody might be prepared to pay $100 for a hotdog, or $50 for a gallon of gas, or $10 for a sandwich (see LCC's on-board pricing). Of course I'd be called a bar-steward for selling at 'unethical prices', but so what. In a capitalist world the law of supply and demand is paramount.

I also doubt that anyone in this industry could actually tell you what it costs to move a passenger, even a typical passenger, from point A to B. Too many variables. Fixed costs might be easy, but variable costs would be impossible to isolate down.

[Heathrow Harry]

"The perfect price is the price the punter is prepared to pay. Cost of production is irrelevant."

perfect for whom?

If the punter (s) pay less than the cost of production it is not perfect for the seller/manufacturer as they will eventually go bust

You can even say it's not good for the punter as it reduces his/her future choice but in this day and age no-one cares

If you are talking about valuing a product then you are correct - it is only worth, in asset terms, what the market will pay but that is not necessarily "perfect"

[SeenItAll]

Cost enters into the matter in two ways.
Over the short run, the price paid must always exceed the incremental cost (e.g., extra fuel, catering, etc). Otherwise, no value in carrying the punter.
Over the long run, the sum of the prices paid (total revenue) must exceed total cost, otherwise the company goes broke.

[WHBM]

Cost enters into the matter in two ways.

Over the short run, the price paid must always exceed the incremental cost (e.g., extra fuel, catering, etc). Otherwise, no value in carrying the punter.
Well, not really. Once your timetable is in place for a season you pretty much know what your costs are going to be. Incremental costs of each passenger are such a small proportion of the total that they can be pretty much put to one side. Revenue however can be flexed down (easy) or up (more challenging) by the day.



Over the long run, the sum of the prices paid (total revenue) must exceed total cost, otherwise the company goes broke.

Sure

[ExXB]

HH - sorry if I wasn't clear. I was referring to the airline when I said the perfect price is ...

The dynamics for the customers are quite different.

[Doors To Manuel]

Very interesting thread, guys with inputs from people who clearly understand the science of revenue management at a network airline.

Remember all this wisdom next time you are checking availability for your own non rev flights on any airline other than your own. Using a site like idDeals.com to check seat availability forecasts always do this on a sector by sector basis as this will give you the closest to the 'actual' result.

In the example of BRU-LHR-JFK, if you are standing by on this route then the number of seats available LHR-JFK on a BRU-JFK query will be different from the seat availability on a GVA-JFK availability that includes the exact same transatlantic flight.

So always best to check BRU-LHR and LHR-JFK separately.

:ok: