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Demystifying (and re-mystifying) Airfares

If you're Canadian, and over a certain age, you will no doubt use the term "seat sales" when debating about whether or not to purchase an airline ticket or wait for a better deal.  Most Canadians don't know this, but the term is a unique Canadian expression.  An American, for instance, wouldn't know what you're talking about.  It was first used by an airline back in the early 1980's when - in the middle of a recession - it launched an eye-catching sale.  The practice continued for many years; until computer software became sophisticated enough to manage inventory more efficiently.

Today, the "sales" you see in ads and the "promo codes" for discounts are a bit of smoke and mirrors.  The airlines' "yield management" systems are so good airlines rarely have to release a genuine panic "sale" to raise needed cash.

So, just how do airfares work when you shop around for a deal?  And how do you know whether you should or should not grab the best deal now, or wait for a better price?

I'll spill the beans right away and say that these days it is very rare indeed that waiting for a better deal pays off.  75% of the time the strategy will back-fire.  Here's why.

There are three main factors controlling the prices you see for a trip.  (There is a fourth one, but that is something I'll save for another day).

1. Advance Purchase:  This is the overriding factor that supercedes, for the most part, the other two factors.  Airfares are published in 3 or more tiers based on how far you ticket in advance.  Typically, for "domestic" travel (ie. Canada/USA) the best fare will be something you must book at least 14 days in advance (it can be higher.)  And, for international travel, it typically is 3 weeks ahead for economy and 45 days ahead for business (again, both can be higher at times).  This sounds simple, but given this is the wild and illogical world of airlines, it isn't.  Depending on the other two factors below, airlines are constantly tinkering with the advance purchase rule.  What takes 14 days advance purchase for the lowest fare one day might turn into a unpleasant 30 days rule the next.  You just never really know.  [We rely on judgement and experience to assess risk.]

2. Availability:  Airfares are further "tiered" into 10+ separate "buckets" or inventories, as we call them.  Here, the lowest fare will be a subset of the second lowest inventory, which is in turn a subset of the next lowest.  And so on.  When we assess the risk of delaying your purchase (because of uncertainty about the trip or hopes of a better deal), we check the "bucket" to see how many seats are actually available.  Something you can't do online!  This too, however, is fraught with danger.  As with the advance purchase rules, airlines continuously tamper with inventories.  On one day we might seat 10 or more seats available at a certain price point; and mysteriously overnight these seats evaporate!  What has happened is the airlines' sophisticated yield management system has kicked in and "decided" it can now eke out more money from this perishable commodity, and it moves those "cheap seats" into a more expensive bucket. 

3. Market Forces:  Notwithstanding the two factors above, the price of these buckets and advance purchase levels themselves go up and down like local Vancouver gas prices.  Market forces are to blame.  Let's say an airline competitor pulls out of a market.  A recent example is the Vancouver-New York route.  During the off-season, Air Canada and Cathay Pacific had this route all to themselves, but in February, 2020, Cathay Pacific announced that it was giving up this route (after 20+ years).  This leaves the non-stop route for Air Canada all to itself (except in the summer months).  I think it doesn't take a genius to know what happens to Air Canada's airfares!  A more common example is the "copy cat" phenomenon.  If one airline in a market is cash-strapped or just wants to take a jab at a competitor, and lowers airfares, the competition all match within hours.  (The same is true in reverse: if one airline suddenly "ups" its prices across the board on a route, almost always the competition will follow within hours.)

So, what do you do?

Well, you know what I'm going to say.  You can shop online and make arbitrary decisions, or you can trust the judgement of a travel professional.  Here's a secret: when we talk to friends who brag about their travel-booking prowess or complain about the disasters they have experienced, we just drop our eyes and try to control our facial expressions.  Secretly, we laugh.  Someone who books 2 or 3 personal trips a year is not an expert.  Our people book 10 - 25 trips a day!  We've seen every conceivable issue after years of experience; and we assess issues above on a daily basis.  What's more we have the tools to see the big picture.  We know what's going on in the aviation world: who's adding flights, using larger aircraft with more capacity, who's pulling out of a market, who is in financial difficulty.  Our judgement is based on years' of experience and a natural talent for this line of work.  It is fun to be a do-it-yourselfer, but as the old travel agent ad goes, "Without a travel agent you're on your own!"  

 

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