Editor's Note: After Flightfox saved me money on my recent flights from Medellin to Puerto Vallarta, I chatted with Lauren, the co-founder. She offered to help demystify why airline prices can fluctuate so wildly.
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 ensure you get the best deal.
Load Factor
Airlines want one thing: to maximize profit by filling their planes. To measure whether a plane is full, airlines calculate its 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 to 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 the availability of cheaper fares.
Fare Buckets
We all know about the 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 following fare buckets all have different prices. They also have different restrictions and earn frequent 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 before the departure date. At that time, they'll offer tickets in various buckets.
If you get in early, you can book the cheapest buckets available. As departure approaches, 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 business class fare buckets, the winner (Xavier) built an itinerary for less than it would usually cost in economy.
Xavier's business-class itinerary to six continents cost only $2,569! Typically, RTW to six continents in business class is over $10,000—even simple international round-trips in business cost twice this much.
Revenue Management
We've learned that airlines aim to maximize Load Factor by managing the availability of different fare buckets. But what influences their decision to change the 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 approach the departure date, the 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. Airlines 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 booking early.
Otherwise, a lot can be done to find a great fare if you're flexible with your destination and/or dates. This involves experts using industry tools to find similar flights with the cheapest buckets.
In some cases, this may involve longer flights or more stops, but in many cases, it can uncover more convenient or 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 among the first women to cross Mongolia's Gobi Desert entirely on foot over 1,000 miles and 52 days.
Jeff Palmer says
Is this a sponsored post?
Lauren McLeod says
Hi Jeff, I used to be a travel blogger so I consider this a guest post. I haven't paid Dave to publish this, nor have I paid for him to try out or endorse Flightfox. He just asked me via email why flight prices are always changing, so instead of a lengthy response, I suggested I could write this up.
We do have a referral system which Dave is a part of. If you use his referral link to launch a flight contest, you receive 25% off and he also receives 25% of the finder's fee you put up.
Dave says
No Jeff, I'm just a big fan of Flightfox, and accepted Lauren's offer to do a guest post.
As she mentioned, I'm part of the affiliate program, and thus receive a commission off anyone who clicks the above links, and starts a flight contest.