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). Secondly, 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.
- 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. 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 an episode of The Price is Right.)
- 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. 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 to 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 this: 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. 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.
What this means is that 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.
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? 🙂
1. Airline Fare Type: 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.
2. Airline Fare Type: 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.
3. Airline Fare Type: 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.
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.
Hi, I’m Steph! I specialize in working with people looking to start and/or grow their travel agencies. I’ve worked with thousands of agents and helped them learn more about the travel industry… and I’m happy to help you out too. If you’ve found this article helpful, please help give it some love via like/tweet/share or drop us a comment! Learn more about Steph >>