Anatomy of an Airfare: What Determines Your Price?

Two people on the same flight in the same section of a plane can pay wildly different prices. Here's why.

Airfares are highly variable. You could be sitting next to someone who paid several hundreds more than you to be on the same plane even if you’re flying to the same destination.

What drives these price differences? Let’s break down the big factors.

Supply & Demand

Airlines respond to the same simple economics as any seller. They want passengers to pay as much as they’re willing for their seats.

“They charge what the market will bear, and hopefully that’s more than their costs,” said Robert W. Mann, an airline industry consultant and former airline executive.

Unlike many businesses, airlines know certain passengers are willing to pay more than others. Airlines also have the ability to charge different prices to different customers, thanks to sophisticated algorithms that help them ensure they fill — and sometimes overfill — each flight. On top of that, airlines aren’t selling just one product.

Say you buy a ticket from New York to Chicago. Many of the people on the plane with you may have bought tickets for different journeys, from New York to San Francisco or Hawaii or beyond. Airlines have to balance the number of seats they offer to someone making the shorter trip to Chicago against the number of seats they offer to people making longer trips who are often willing to pay much more for their seats, Mann explained.

“What you’re willing to sell and what you’re willing to show as available for sale depends on the network you’re selling,” he said.

Airlines think in terms of selling an entire network of trips, not just individual seats, Mann said. This can make setting prices complicated. But that doesn’t mean there aren’t factors that have a discreet impact on your airfare.

Location

The airport a passenger chooses matters a lot, said Patrick Surry, chief data scientist for Hopper, an app that calculates the best times to book flights. Airfares from airports that have multiple airlines competing over the same routes will often result in better deals.

Conversely, airfare might be higher at smaller airports or even bigger hubs dominated by a single airline because of a lack of competition.

Government fees also play a role. For example, the United Kingdom charges an Air Passenger Duty that can inflate the price of premium cabin seats flying out of Heathrow by upwards of $200.

Time

Airfares can vary widely by when they’re purchased. In general, night departures go for less than morning departures, Mann said.

Passengers can also save money by purchasing tickets far in advance of their trips, although the cheapest tickets are restricted, or non-refundable. Fares typically stay at their lowest until a few weeks before departure, at which point airlines typically increase prices until takeoff, Mann said.

However, that’s not always the case. If a flight is booking slowly, airlines may release more low-priced tickets, Mann said.

Location also affects how prices change over time, Surry said. Destinations that draw lots of business travelers who tend to book late and are willing to pay higher prices for unrestricted tickets will see airfares rise the most as takeoff approaches.

More touristy destinations with fewer business travelers, like Hawaii or Cancun, won’t see prices rise as much.

The airlines’ goal is to make the most money from a limited number of seats, knowing that the people willing to pay the most won’t book until days before the flight leaves. They have to fill up the plane enough to cover fuel and other costs while leaving seats to sell to last-minute buyers.

How to Get the Cheapest Airfare

Airlines have tons of data available that allow them to determine what to charge each customer.

“We’re trying to fight fire with fire,” said Surry. “We also have an army of computers.”

While price changes can sometimes seem random, there are certain predictable elements, Surry said. Prices are generally comparable during the same seasons each year, and they rise in a predictable way as departure approaches.

However, the best broad tip he had was for passengers to be flexible in their travel dates and destinations. A few years ago, he traveled to Europe with his family and found that he could pay much less by flying to Lisbon instead of London and Paris while still being able to visit via cheaper intracontinental flights or trains.

Booking vacations can be complicated because travelers have to account for not only airfare but also hotel rates and possibly car-rental prices, Mann said. Make sure to take all your costs into account when planning your trip.

Travelers can also save on their airfare if they use the right credit card. Many airlines offer co-branded credit cards that award points and miles for purchases. Just remember, many travel rewards cards require excellent credit, so be sure to check your free score on Credit.com to see whether you qualify.

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The ‘World’s Best Airline’ Is About to Start Charging to Pick Your Seat

emirates-airline-charges-for-seat-selection

Emirates, lauded as the world’s best airline with the world’s best in-flight entertainment, plans a major booking change beginning next month that flyers may or may not like.

Beginning in October, Emirates will charge flyers to choose their seats. An Emirates spokesperson told Credit.com by email that the Dubai-based, government-operated airline will introduce “a minimal charge for those looking to select their Economy seat in advance, for tickets issued on or after October 3, 2016.”

The charge, the price range of which the spokesperson hadn’t confirmed by press time, will apply specifically to Special and Saver fares in the Economy Class, and “will vary depending on the duration of the flight,” they noted. Passengers checking in online two days before departure will not pay the fee.

According to the carrier’s site, Special fares are the company’s lowest and carry restrictions. Meanwhile, “a Saver fare is slightly more flexible than a Special fare,” the site says. (Emirates defines its fares as the price of a ticket, and not the ticket itself.)

The Emirates fee may be new, but the precedent for charging customers was set long ago by other international carriers. Baggage fees are increasingly common among airlines like Aer Lingus and Air Canada, while others like British Airways are known for charging so-called service fees for cancelling, booking or changing a flight.

Brett Snyder, author of the consumer air travel blog, The Cranky Flier, said via email that we can thank economics for these fees. To him, Emirates’ latest change proves “that when economics get involved, it’s too hard to ignore the revenue benefit for charging for services that may be included in the ticket price today. Emirates is seeing revenue softness,” he added, “and is trying to boost its bottom line.”

Matthew Ma, co-founder of the travel deals site, The Flight Deal, agreed, noting the practice will likely only continue. “More airlines will charge for services they used to give for free,” he said over email.

Tips for Avoiding Airline Fees 

With the price of travel soaring ever higher these days, consumers owe it to themselves (and their wallet) to check the total cost of tickets before signing up. That means factoring in charges for baggage fees and meals, as well as any fees for bringing pets or carrying an infant on your lap, for instance.

One way to cut down the price of airfare is by putting miles from airline rewards credit cards to use. Some cards will grant you the VIP treatment, offering access to airline lounges and waiving baggage fees away. Just remember, your credit needs to be solid before you apply as these cards are typically extended only to those with good credit. You can see where you currently stand by viewing a free summary of your credit report on Credit.com.

Image: Andrey Danilovich

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How We’re Planning Our Hibernation Vacation

We know we’re preaching to the choir when we say this winter has been rough. It’s for this very reason that we’re “leavin’ on a jet plane and don’t know when [we’ll] be back again.” We need sun, sand and warmth – like, now.

This is our strategy for keeping the costs of our trip down, or keeping it not-so-expensive (NSE).

Changing Course

When we first started this article, we were planning to head to Puerto Vallarta, Mexico in early Spring. We were relying on the credit card miles we built through managing our business. Unfortunately, on our quest for flights, we learned that the number of miles required to fly to Puerto Vallarta has increased. Now, it would cost us as many airline miles to fly to Puerto Vallarta as it would to fly to Brazil or Italy. As we’ve used miles to fly to Puerto Vallarta before, this felt like a bait and switch.

We have miles on other cards, but they’re more conducive to European travel. To use the miles we want to unload now, we decided to rethink our vacation destination.

Now we’re headed to Palm Springs, Calif. This will let us use the miles we need to dump and keep our travel expenses low. Because we’ve chosen a smaller town that offers a lot in a centrally located place, we won’t need to rent a car. We may, however, rent bikes because that sounds fabulous. (It may sound less fabulous once we’ve imbibed in a few libations, but we digress.)

The other strategy we’re implementing is monumental planning. We always say that planning is key maintaining any budget and it will be the key to controlling our vacation expenses. First, we’re scouting the restaurants, coffee shops and bars that have online coupons. We’re also researching which establishments offer promotions and when. Hey, we’re not above the Blue Hair special.

We’re using tech, as well. Here’s how.

1. Vacation Alerts

We’ve signed up for alerts with sites like Airfarewatchdog.com and Jetsetter.com, which offer customized alerts. We choose the kind of vacation we want, where we want to go and what we want to do — and receive alerts tailored to these needs. These sites offer a lot of ingenious money-saving travel tips and share potential deals on social media as well.

2. Discount Codes

Sites such as RetailMeNot.com offer discount codes for just about everything. For our pending vacation, we’re looking for hotel options, but we can also search for airline tickets and car rentals. Discounts range from a few dollars to 40% off. RetailMeNot also offers vouchers for free meals at hotels and bonus rewards points and miles for hotels and airlines. If the stars are aligned, we may even be able to use our existing hotel and airline rewards with discount codes.

3. Planning Ahead

We want this vacation to combine relaxation with adventure. On vacation, everything costs money and expenses add up quickly. We’re using sites like Living Social and Groupon to plan our activities ahead of our trip. These apps and others let us change locations even before getting to our vacation destination so we can find discounts in that area.

To avoid luggage fees, we’ll each take one carry-on bag at the most. This vacation will only be one week. We survived 30 days down under with only two carry-on bags. Seven days will be a piece of cake.

4. Coupons

We’re downloading coupons for groceries, restaurants and other entertainment and activities in Palm Springs. Sites such as Coupons.com and TheKrazyCouponLady.com offer more coupons than one needs. Some coupons can be sent via text directly to our phones.

There are also apps, like The Coupons App, that can help you find discounts in your travel destination.

5. Gift Cards

Similar to holiday shopping, we can buy discount gift cards in advance and use them on our vacation. Sites such as Giftcard.com, Giftcardgranny.com and Plasticjungle.com offer a wide variety of discount gift cards including ones for clothing and other retail stores, movie theaters, spas, airlines and car rentals.

6. Travel Apps

Apps such as Travel Zoo offer discounts on hotels, airlines, entertainment and local attractions in both foreign and domestic cities. There are also apps, like Larky, that track your loyalty programs and membership benefits. Larky, for instance, notifies us when we’re near an establishment that offers a discount through a loyalty program we belong to.

This is our strategy for getting away from Old Man Winter and not succumbing to becoming Poor Richard in the process. Hopefully this gives you an idea how to lower the cost of your hibernation vacation so can still reach your financial goals. (You can monitor your financial goals like building good credit for free on Credit.com.)

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Image: Milan_Jovic

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