FEATURE ARTICLE
How deep are your pockets ?
By Martin Hadfield for ARMA
The next time you ’ re sitting on an aircraft or waiting at an airport take a look around at the different types of people that are travelling . Then ask yourself , how deep are their pockets ? That is , how much do you think they would have been prepared to pay for their flight ?
Some will be in suits , there may be families with children , backpackers carrying all their belongings on their backs and even retirees going to visit the grandkids .
The man in the suit typing furiously on his laptop may be heading to an important business meeting . He might be going to secure a deal that guarantees the future of his company . I bet he ’ d be prepared to pay a lot more than the backpackers sitting on the floor in the gate lounge charging their phones for free against the wall . Mum , dad and the two kids would probably have cancelled their holiday altogether if the flights were too expensive .
Even though they ’ ve all bought the same sized seat on the same aircraft travelling to the same destination , chances are they ’ ve all paid different prices for their tickets .
That ’ s what revenue management is all about . Charging customers an amount that reflects what they ’ re prepared to pay for an identical product . If done correctly , this can create a more profitable outcome than just using one fixed price , because you can cater for the price conscious while at the same time maximising the revenue from those who are willing to pay more .
However , an airline doesn ’ t know exactly why someone is travelling when they go to their travel agent or jump online to make a booking . So airlines try to identify these different passenger types based on expectations about their booking habits .
For instance , business people normally make their bookings close to the time they are going to travel , so airlines will charge higher prices at this time . It ’ s the reverse for holidaymakers who often plan their trips well in advance . Since holidaymakers are usually more price-sensitive , fares will tend to be cheaper the further in advance that they book . These are , of course , generalisations and these rules vary from destination to destination .
In some cases the rules are reversed . If someone is travelling to an exclusive holiday resort that charges upwards of $ 1,000 a night , it is unlikely that they will not be enticed to travel by a $ 10 saving on their airfare . For these destinations , it may be more expensive to book in advance when holidaymakers are making their plans .
For those who can remember air travel from ten or more years ago , you will recall the multitude of confusing fare types and conditions . These rules required things like a 14 day advance purchase , or forced a Saturday overnight stay on a return ticket and were all attempts to separate different types of travellers . The advent of low cost carriers such as RyanAir in the UK led to the demise of these complicated fare rules and has created an era when price is king and availability of price is manipulated more actively .
Nowadays , sophisticated software systems attempt to forecast trends , but these systems use the past to predict the future and as such need the input of someone who understands each destination . The airline industry ,
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