Shajara Whave Uson October 16, 2021
MBA 203
Video Case Analysis
Title: This Is How Airlines Price Flights
1. According to the video, what are some of the various factors airlines consider to
determine how much a plane ticket will cost?
Gathering Data - Airlines are gathering data about their passengers as to when where and why
they were booking a flight in the first place. With that information, airlines can predict their
customers’ behavior and manipulate their prices to maximize their profit. This is primarily done
through loyalty programs, registered users, and browsing cookies with information about their
customer’s age, location, travel habits, and even random insights.
Determining the type of flight - certain destinations have a marked leisure profile and it allows
airlines to identify their potential customers and their ticket-buying habits. Considering the type
of flight taken and the actual popularity of the route, all determine the cost of the flight ticket.
There are two types of travel customers, these are:
Leisure - If most customers booked their flights months before their scheduled event or
holiday travels, airlines make sure that starting price is high and these fares are then adjusted
according to the seats purchased.
Business - Business travelers always book their flights last-minute and as a result, fares
are always soaring high, not unless you have booked your flight months in advance then you
may be able to snatch a good deal.
Important days of the week - With all the data gathered from previous flights, a survey done by
the Airline Reporting Corporation predicted which days of the week they’ll set their prices high.
According to the survey, the most expensive day to buy flight tickets is Friday while Tuesdays
and Thursdays are the best for lowering costs. These prices were first determined by marketing
managers who were responsible for flash sales and offers but currently, they are automated and
unified across most airlines.
The important days of the week will also vary depending on the location of the airline. For the
US airlines, Tuesdays at midnight produce the best search results.
Other factors
- If a similar airline has cheaper seats for that same route, everyone else will have to
adjust to make sure their planes still get fully booked.
- However, for destinations with very little competition, the prices are typically more
expensive and hardly ever drop.
- The longer the flight the more expensive your ticket will be.
- Tickets can also become expensive if the fuel prices become higher, as the airline still
has to make some profit from flying you to your preferred destination.
- Sometimes, a connecting flight can turn out to be much cheaper than a non-stop flight
without any layovers.
Seat Supply - Airlines may set different prices for the same flight and can even charge a
completely different price for the identical seat.
2. What is a yield management pricing strategy? Are there other industries that use this?
Yield management is a variable pricing strategy based on the principle of maximizing the
revenue from a fixed, limited resource. It finds the optimal balance of supply and demand,
where the price perfectly matches the demand.
In incorporating this strategy on airlines, they intend to separate customers into two categories:
- Those who are willing to pay any amount for their ticket
- Those who are looking for a much cheaper option
The strategy allows the airlines to fly full planes and make as much profit as possible. To ensure
all prices adjust accordingly, airlines run software programs that monitor flights and booking
patterns. In that way, they will be able to oversee the behavior of their customers and predict
how, when, and why will a person book their plane tickets.
This strategy is also used in hotels — selling the right room, to the right guest/s, at the best
possible time, for the highest amount, in order to maximize the revenue earned. Same for Car
Rental Agencies— charging slightly more in periods of high demand to be able to lower prices in
off-peak periods and attract more users. Restaurants— offering a special promotion on days
where it doesn’t have much foot traffic. Television Broadcasts— setting higher prices on tv
commercials that air at times where the viewer rate is high. Others include Telecommunications,
Cruise Lines, etc.
Yield management strategies take a data-driven approach to ensuring pricing is adjusted in
order to maximize business results. Offering lower prices at off-peak/quieter times and raising
prices at busy, peak times results in higher revenue overall.
3. How do low-cost airlines such as Allegiant and Southwest operate at a profit?
These airlines work on a different low-luxury strategy that allows them to only provide the
necessities to their customers. From seats that don’t recline to the lack of back pockets allows
their crew to spend less time on maintenance and cleaning, therefore reducing the total cost.
This is extremely convenient for shorter flights and frequent routes. These airlines save money
through (1) cutting operating costs by flying smaller jets, for shorter distances, with higher
frequency to cheaper airports, (2) Fuel Hedging - It's a gamble against the future price of jet
fuel. If an airline thinks that the cost of fuel is going to rise in the future, they can sign contracts
locking in the current price for months or even years. If fuel prices double in 12 months, the
airline would be buying fuel at last year's cheaper rate. However, if prices drop, the airline is
stuck paying their "locked-in" higher rate. (3) Ancillary revenues - these are earnings from ales
and fees for products and services such as food, checked bags, and extra-legroom.
Low-cost carriers such as Southwest have several critical advantages over their competitors.
Southwest Airlines offers one of the lowest-priced solutions for air travel. This airline had to build
its business model around low operating costs to be able to offer low prices. It only has a few
aircraft types, which helps the airline reduce its costs. They focus on providing the lowest prices
for the most popular routes, which means fewer routes will need to be abandon. Southwest is
the only large airline that can compete on price.
Another factor in helping low-cost airlines make a profit while setting affordable prices:
Type of aircraft - Airlines tends to buy their aircraft in bulk which can greatly affect the price of
the actual fares. They also buy specific types of airplanes where they will be able to reduce their
staff training costs to only these aircrafts. This will help them save money whilst allocating
enough for the expensive fuel and other expenses.
4. As a consumer, what are some best practices for getting the best deal on flights?
As a consumer, one practice I usually do when finding the cheapest flight is to visit and compare
fare prices on apps/websites like Traveloka, Google Flight, Klook, and Skyscanner. These sites
enable you to immediately see the lowest fares in a calendar format which can be useful when
you still haven’t had a fixed date on your next travel. These applications also often offer
discounts and vouchers on their platforms.
I also had this habit of keeping my searches on multiple search engines in incognito mode.
Based on the cookies in your browser, flight prices do increase when a particular route is
repeatedly searched. Since most people don’t like traveling early in the morning or late at night,
these times can often provide lower prices for flights too.
In addition, I opt to subscribe to some airlines’ travel reward sites where you can earn points
and redeem or get a voucher for your next flight. Be on the lookout for promo deals such as
Cebu Pacific’s “Piso-Fare” or “Seat Sale”, this is one way of getting the cheapest flights as well.
You can also take into account that domestic flights do have “Rainy Deals” where they tend to
offer much cheaper seat prices on months that fall on the rainy season. Another way to be
updated on fare sales is to follow every airline’s social media because they have been using
social media platforms more to spring up last-minute deals for their customers.
