Last Minute price cuts, the Myth

Before getting to the heart of the matter, we are tempted to point out that IP Tracking is NOT a Revenue Management issue! This highly controversial technique uses Mr X’s connection details to trigger his purchase.

Revenue Management has nothing to do with this. It is not interested in individual behaviour but in groups of individuals with the same economic contribution (known as « yield segments »), which it sorts in order to optimise sales. For example, if demand allows, the Revenue Manager will prefer to offer 45€ to 50 individuals and then 60€ to another 50 rather than 50€ to 100 individuals.

This may explain why two people sitting next to each other do not necessarily pay the same price. On the other hand, it explains why you’ll generally see prices go up rather than down.

You might say that charging 60€ and then 45€ is the same thing, and that you have sometimes seen a price go down at the last minute. Here are 4 reasons why Revenue Managers prefer to use the rising price method…

Revenue Managers say NO to the Last Minute

Last-minute low prices are a myth! It can happen. But relatively infrequently in the airline industry, where Revenue Management practices are widely deployed and where powerful mathematical algorithms have been used to anticipate demand for almost 50 years now. When you do have to resort to it, it’s rather reluctantly… Why?

Firstly, as mentioned in the article  « Quelques astuces pour réserver son billet d’avion » (RTBF, On est pas des pigeons, 08/06/2016), there is no point in charging a passenger a lot of money six months before their departure only for them to cancel their flight for a cheaper ticket at the last minute (if the ticket price conditions allow it). I assure you, for a Revenue Manager, it makes a bad impression to present his Management with a decreasing turnover…

The second reason is that airlines prefer to guarantee a certain volume of passengers. Guaranteeing bookings well in advance means guaranteeing cash flow and limiting the risk of empty flights.  Taken to the extreme, the argument would be that it’s still better for the plane to leave full with a slightly lower average price than for it to leave empty! How does the Revenue Manager proceed? He predicts a fill level based on his knowledge of the market and forecasting algorithms, and compares it with what actually happens. Roughly speaking, if demand is higher than his forecast and he believes he can fill the aircraft with higher prices without penalising occupancy, he will raise prices. Otherwise, he will let demand come to him, and will ask himself the same questions several times until the plane leaves, which is why prices sometimes increase several times.

The third reason is that airlines don’t want to get their customers used to planning at the last minute. Put yourself in their shoes and imagine the stress of not knowing, until the last minute, whether you will make a profit or not, whether you need to adjust your flight crew or not, whether you need to plan for 20 meals on board, or 200 meals… Believe me, once again, airlines benefit from you booking early!

Finally, you should know that many customers who book at the last minute are prepared to pay more (unexpected event, business trip, etc.). Here again, it is not in the airline’s interest to charge less to those who could squeeze a few extra tickets out of their pockets!

As you can see, and as the airlines can see, it’s best to get in early.

What about the relatively high prices, even well in advance?

Prices may be high if you get in early. Ouch!

This is no coincidence. The first price you’ll find when the sales open is also the result of clever calculations. Sometimes there’s nothing you can do to « get around » this high price: if you make the Paris-London round trip on the same day, you’ll pay more because you have the profile of a businessman/businesswoman, whose sensitivity to price is lower.

Unless you’re travelling during a school holiday period? Or there’s an event on your travel dates? Or your departure or arrival times are particularly convenient? In these cases, don’t give up: check prices on other dates or flight times. Prices also vary according to the level of demand for each flight (seasonality). This way, you may find more attractive prices.

So, if you want to increase your chances of getting good fares, it’s best to book early and leave on a different date or time!

Keywords: Last Minute, Myth, On n’est pas des pigeons, Revenue Management, Revenue Managers