Understanding Airline Fare Types


The airline industry is unique in that there are various airline fare types.  Imagine this, 2 customers walk into a local consumer electronics store to a 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. It sounds outrageous when making the comparison to any other industry but this is completely accepted in the airline industry.

Two economy passengers on a flight from San Francisco to New York compare their ticket prices only to find that one passenger paid hundreds of dollars more for the exact same flight (and they both still have to pay for $7 extra for a pillow and a blanket). Believe it or not there is a method to the madness and understanding this method can help you find the lowest fares for your clients.  Or if that’s not possible, you can educate your clients on why you don’t have access to those airline fare types.

How Airline Pricing Policy Works

The method airlines use to maximize revenue is to two-fold.  First, they want to maximize passenger yield (average price someone pays to fly one mile) and secondly, maximize occupancy rates (fill as many seats as possible on the plane.)  These two factors are the driving factors behind the creation of the different airline fare types.

  1. Maximize passenger Yield. Airlines recognize that each passenger has a price threshold when it comes purchasing a seat on a plane – that is a 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 offer a price that is as close as possible without going over. While most consumers purchasing a television expect to pay approximately the same as the next guy, a business traveler for example might be willing to pay a much higher fare than a leisure traveler as typically business travelers are stuck to a strict schedule.
  2. Maximize occupancy rates. Unlike a television sitting in a consumer electronics store, airline inventory has a strict expiration date. Once that expiration date is reached (the plane departs) any empty seats are lost revenue. The airline will use historic data to figure out just how many discounted tickets need to be sold in advance, in order to fill enough seats and still have 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 adjust to the current conditions, and also rely on both traditional and online travel agencies to sell excess inventory.

Intro to Airline Fare Types

The main issue that most airlines face is that maximizing passenger yield directly conflicts with Paper Air Ticketmaximizing occupancy rates. The airline wants to fill seats at any cost to make sure the inventory doesn’t expire but also knows there might be a business traveler out there willing to pay hundreds of dollars more for the exact same seat. Their solution private fares.  These types of airline fares are 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 at anytime up to the advance purchase requirement – sometimes up to 3 days before departure.

What this means is that consumers buying a last minute ticket with a low price threshold can purchase a discounted private fare ticket while the airline can maintain the integrity of its published pricing policy in hopes that a business traveler will come along a higher priced seat. Airlines can further protect their pricing structure by offering select agencies another type of airline fares – opaque fares.  These airline fare types are 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 clients comes to you with a fare you cannot match, it is due to one of these 3 airline fare types- Published, Private, and Opaque.

Airline Fare Type #1: Published Fares

Published airfares are available through the airline directly and 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.

Read tips to help your client get the lowest published fare.

Airline Fare Type #2: Private Fares

Private airfares were introduced as a way for airlines to sell excess inventory while keeping their traditional 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 an market-driven agency markup in order for the agency to make a profit.

Read our article on lowest airfare prices for tips on how to find the best private fare:

Check In Kiosk

Airline Fare Type #3: Opaque Fares

Opaque airfares offer an additional protection to airlines that are looking 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.

Share any tricks you use or advice you give client for saving money on airfare in the comments below.  

 

Photo courtesy of L.Chang, PhillipC
Special thanks to Martin Bell (@Martyjbell) for his contributions to this article.

Comments