Science, at times, can be quite disheartening. Take, for instance, a group of researchers from different universities who recently discovered that there is no magical secret to finding cheaper flights. It turns out that airlines are likely missing out on potential revenue by not adopting a more efficient pricing system.
Sure, you might have heard on your morning news program that flights are cheaper if you travel on Thursdays after a full moon and during a bountiful corn harvest, but all of that is simply nonsense. Four researchers, two from the University of Chicago and two from the University of Texas-Austin, analyzed the data and published a paper on airline ticket prices in the Quarterly Journal of Economics. According to Olivia Natan, an assistant professor of marketing at the Haas School of Business, this research proves that airlines operate differently from other businesses, rendering the search for a good deal futile. Natan explained this in an interview with Physics.org:
Surprisingly, airlines do not consider their competitors’ prices when setting their own prices through automated systems. In most industries, if one company lowers its prices, others follow suit. However, this is not the case with airlines, which undermines the benefits of a competitive market.
This unconventional behavior, known as Expected Marginal Seat Revenue-b (EMSRb), is a specific pricing heuristic used by airlines. The researchers demonstrate that this approach leads to another unexpected outcome for consumers.
Despite appearances, airlines establish a limited number of fixed prices for each flight. Unlike other consumer sectors where prices can be adjusted precisely, airlines operate with significant price gaps, sometimes exceeding $100. They may sell the first 30 economy tickets at the lowest price and gradually increase prices for subsequent tickets.
Natan states, “Airline tickets are sold through global distribution systems to ensure that a travel agent in Wichita sees the same price as you do on your computer at home.” This system originated from an industry alliance to facilitate inventory management. Similar practices are adopted by other travel sectors, such as hotels, cruises, trains, and car rentals.
Factors like rigid calculations for flights, lack of communication between airline departments, and the challenge of predicting demand contribute to ticket prices that seem to be determined by whims rather than any clever tactics. It’s a captivating insight into a frustrating aspect of modern life. You can read the full article here.
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