Why do Flight Prices Change?

Editor's Note: After Flightfox saved me money on my flights from Medellin to Puerto Vallarta recently, I got to chatting with Lauren, the co-founder. She offered to help de-mystify why airline prices can fluctuate so greatly.

If you want to pay less for flights, it's important to understand the drivers of flight pricing. In this post, I investigate why prices change so often and how to make sure you're getting the best deal.

Load Factor

Airlines want one thing: to maximize profit by filling their planes. To measure if a plane is full, airlines calculate a plane's Load Factor.

Load Factor LF = Revenue Passenger Miles ÷ Available Seat Miles

This calculates the percentage of purchased seats on a flight. A 747 typically has 300 – 400 seats. If 200 out of 300 seats are sold, the load factor is 67%.

Notice that award flights (flights purchased using frequent flyer miles) are not counted because they generally don't produce revenue.

Airlines tend to manage Load Factor by changing the types of tickets available.

If the Load Factor is low and demand is low, an airline will increase the availability of cheaper fares. If the Load Factor is high and demand is high, the airline will reduce availability of cheaper fares.

Fare Buckets

We all know about economy, business and first class fares. But did you know there are many buckets within these?

This is why your neighbor may have paid hundreds more (or less) for the same flight.

Let's take a look at a Sydney SYD to Los Angeles LAX flight on a Qantas Boeing 747. The below fare buckets all have different prices. They also have different restrictions and earn frequently flyer miles at different rates.

Business: J, C, D, I, U (5 in total)

Premium Economy: W, R, T, Z (4 in total)

Economy: Y, B, H, K, M, L, V, S, N, Q, O, G, X, E (14 in total)

Most airlines make their flights available to book 300-330 days in advance of the departure date. At that time, they'll make tickets available in various buckets.

If you get in early, you'll be able to book the cheapest buckets available. As departure gets closer and closer, cheaper buckets sell out, which is why prices increase so often.

A great example is a recent Business Class RTW contest on Flightfox. By using only the cheapest fare buckets for business class, the winner (Xavier) managed to build an itinerary for less than it would usually cost in economy.

Xavier's business-class itinerary to 6 continents was only $2,569! Normally, RTW to 6 continents in business class is over $10,000.

Even simple international round-trips in business cost twice this much.

Revenue Management

We've so far learned that airlines aim to maximize Load Factor by managing availability of different fare buckets. But what influences their decision to change availability of cheaper fare buckets?

Airlines consider the following in managing their revenue:

• Current Load Factor
• Other airlines' prices on the same route
• Time to departure and opportunity risk
• Input costs, such as fuel, labor and more
• Special events and holiday periods
• Historical pricing trends

As we get closer to departure date, Load Factor is usually high, so airlines restrict cheaper fare buckets to maximize revenue.

If a competitor is charging less, they may increase availability of medium-priced buckets, but don't expect too much discounting. An airline would rather have a few empty seats than create a long-term price war.

Ensuring the Best Prices

Quite simply, it pays to book early or be flexible.

By booking as far in advance as you can, you'll have access to the cheapest fare buckets. Sure, the airline may put on a sale later, but you can't rely on this happening. That's why Flightfox experts often suggest to book early.

Otherwise, if you're flexible with your destination and/or dates, there's a lot that can be done to find a great fare. This involves experts using industry tools to find similar flights where the cheapest buckets are still available.

In some cases this may involve longer flights or more stops, but in many cases it can uncover more convenient or more adventurous routes.

Happy travels :)

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About the Author: Lauren McLeod is one of the co-founders of Flightfox. Like everyone on the Flightfox team, Lauren is an adventurer at heart. She was one of the first women to cross Mongolia's Gobi Desert entirely on foot over 1,000 miles and 52 days.