Understanding Airline Fare Types
Airline fare types are not all created equal, even if the fare is for the exact same seat on a flight. Imagine this: 2 customers walk into a local consumer electronics store to purchase a television. They both walk out with the exact same TV—same size, same features, same model number but one customer is charged $350 more than the other.
If two economy passengers on a flight from San Francisco to New York compare their ticket prices, they may find one paid hundreds of dollars more for the exact same flight
This same logic can be applied to airline fare types. If two economy passengers on a flight from San Francisco to New York compare their ticket prices, they may find one paid hundreds of dollars more for the exact same flight.
This is completely accepted in the airline industry.
Believe it or not, there is a method to the madness. Understanding airline fare types can help you
- Find and access the lowest fares for your clients and
- Educate your clients on why you don't have access to (some) fares.
These are the two driving factors behind different airline fare types. Buckle in. We're ready for takeoff.
How Airline Pricing Policy Works
When it comes to airline fare types, the method airlines use to maximize revenue is to two-fold:
- Airlines want to maximize passenger yield (average price someone pays to fly one mile).
- They want to maximize occupancy rates (fill as many seats as possible on the plane.)
These are the two driving factors behind different airline fare types:
1. Maximize passenger yield:
Most consumers that purchase a television expect to pay approximately the same as the next person. But it's a little different in the ticketing industry.
A business traveler who is stuck to a strict schedule, for example, is likely willing to pay a much higher fare than a leisure traveler with flexible travel parameters.
A business traveler who is stuck to a strict schedule, for example, is likely willing to pay a much higher fare than a leisure traveler with flexible travel parameters.
Airlines recognize that each passenger has a price threshold for purchasing an airline ticket—the maximum price a passenger is willing to pay for a seat. It’s the airlines’ job to figure out what that price threshold is, and to offer a price as close to that threshold, but without going over. (Yep, just like The Price is Right!)
2. Maximize occupancy rates:
Airline inventory has a strict expiration date. Once that expiration date is reached (the plane departs) any empty seats are lost revenue.
Airlines are extremely motivated to fill those seats and will use historic data to figure out just how many discounted tickets they need to sell in advance while still having additional seats on hand for last-minute business travelers.
Of course, this isn’t a perfect science and airlines will often adjust their pricing up to 4 times a day in order to respond to the current conditions. They also tend to rely on both traditional and online travel agencies to sell excess inventory.
Intro to Airline Fare Types
Airlines have three primary airline fare types:
- Published fares: Published airfares are available through the airline directly and are also sold through any travel agency—both traditional and online
- Private fares: This airline fare type is a carefully-managed inventory allocated to air consolidators, traditional travel agencies, and online travel agencies. Private fares generally remain the same price and can be sold anytime up to the advance purchase requirement—sometimes up to 3 days before departure.
- Opaque fares: This airline fare type is used by the online travel agencies (OTAs). Flights are sold to the public without identifying the airline or flight numbers until after the purchase is complete. Another way OTAs use opaque fare is by packaging a hotel (or another product) with the air. The client can see the flight details before check out but the key is that the traveler is not able to easily figure out what the air is worth vs. what the hotel is worth. It’s a mystery. Or opaque. :)
The main issue that most airlines face is this: maximizing passenger yield directly conflicts with maximizing occupancy rates.
Here's a rundown:
The main issue that most airlines face is this that maximizing passenger yield directly conflicts with maximizing occupancy rates.
The airline wants to fill seats at any cost to make sure the inventory doesn’t expire, but they also know there might be a business traveler out there willing to pay hundreds of dollars more for the exact same seat.
Their solution? Private fares.
PRIVATE FARES
This type of airline fare is carefully-managed inventory allocated to air consolidators, travel agents, and online travel agencies.
While published fares fluctuate daily and generally follow a traditional set of algorithms used to determine your price threshold, private fares generally remain the same price and can be sold anytime up to the advance purchase requirement—sometimes up to 3 days before departure.
This means consumers with a low price threshold can buy a last-minute discounted private fare ticket and the airline can still maintain the integrity of its published pricing policy (in hopes that a business traveler will come along to buy a higher priced seat).
OPAQUE FARES
Airlines can further protect their pricing structure by offering select agencies another type of airline fares—opaque fares. This airline fare type is used by the online travel agencies.
Flights are sold to the public without identifying the airline or flight numbers until after the purchase is complete. Understand that when a client comes to you with a fare you cannot match, it is due to one of these 3 airline fare types—Published, Private, or Opaque.
Let's break down these fare types a little more, shall we? 😊
Airline Fare Type #1: Published Fares
Published airfares are available through the airline directly and are also sold through any travel agency—both traditional and online. Published fares can fluctuate multiple times a day as the airline attempts to maximize revenue for a given flight. A published fare will generally be the same price whether purchased through a travel agency, online travel agency or through the airline directly.
Airline Fare Type #2: Private Fares
Private airfares were introduced as a way for airlines to sell excess inventory while keeping their advance purchase pricing structure intact. Private fares can be purchased through various travel agencies, both traditional and online.
Private fares are generally given to agencies at a net price, meaning the fare sold to the customer will include a market-driven agency markup so the agency can make a profit.
Airline Fare Type #3: Opaque Fares
Opaque airfares offer additional protection to airlines that want to keep their traditional pricing structure intact. Opaque fares omit airline identification information until after the flight is purchased. The customer is not shown the airline, the flight number or the flight times until credit card information is entered and tickets are issued.
Opaque fares can offer large discounts for the flexible traveler but are usually non-refundable and non-changeable. Opaque fares aren't readily accessible by travel agencies but are important to understand to help educate clients on why you're not able to offer that rate.
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Now I'll be honest that airfare and airlines, while in my realm of expertise, are not my area of expertise. I am not the person that looks at a plane and can name the model. Unless it's a Boeing 747, I might be able to get that one. Might. I am not the person to explain to you in-depth how airline pricing strategy works.
But, I do know some people who really get into this stuff, so I thought I'd weave them into this article to add a little more perspective and depth. :)
Here's an interview with Lary, who used to do pricing at the Canadian airline, WestJet, and is now an air-only travel advisor. You'll find a lot of gems to pick up during the conversation about how he finds the best flights and pricing for his clients... and how he's managed to make a nice living sell only air tickets.
Class Is Dismissed!
Do you have any tricks you use or advice you give clients for saving money on airfare? Let us know in the comments below.
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[Editor's Note: This article was originally published on July 23rd, 2012, and was updated to ensure accuracy.]
Photo courtesy of L.Chang, PhillipC Special thanks to Martin Bell (@Martyjbell) for his contributions to this article.
