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How Airlines Account for Different Price Points Customers Are Prepared to Pay

We all know that different passengers assign very different values to the price they are willing to pay for a flight. For example, the consultant or marketing professional who has been called urgently to solve a problem or close a sale in a remote city will pay whatever it takes to travel, while the annual vacationer seeking a summer break with his family will pay only a fraction of that amount. Using a hypothetical roundtrip flight from New York to Boston, the business traveler may readily pay $400, while the vacationer will not pay anything more than $150. Naturally, the business traveler would prefer to pay $150—even though she will be willing to pay a higher price, if need be. To differentiate between the two types of travelers, airlines impose restrictions to close off the lower fares to last-minute travelers—the two most important being: 1. Requirements for advance purchase (typically at least seven to twenty-one days before date of departure, which business travelers may not be able to do).

2. The need to stay over a weekend (which leisure travelers are happy to do, while business travelers prefer to be at home for their weekend!) So What Does This Mean for You in Your Quest to Get the Lowest Fare? What this all means for you, the traveler, is that an airline ticket price is determined by a vast array of variables, including class of service (coach, business, first) as well as fare category (including 3-, 7-, 14-, or 21-day advance purchase, whether you will stay in your destination over a Saturday night, low or high season, whether purchased direct from the airline or from a travel agent or consolidator, and so on). When overall demand is lower, airlines may start a sale to boost cash flow. Conversely, seats for flights departing at peak times (such as Monday morning and Friday afternoon) will typically be higher because these are preferred flight times for business travelers. Buyer, Beware—What If You Need to Cancel or Change a Nonrefundable Fare? Nonrefundable airfare means exactly that—you cannot get your money back. But that does not mean you cannot change your date and itinerary, as long as you know the rules (which you should clarify with the airline before paying for your ticket). Most major airlines permit a change, provided you call to cancel prior to the ticketed departure time (although some may not require you to do so). Failure to call and cancel the scheduled itinerary in a timely manner will result in 100 percent of the ticket value being lost. Some airlines may give you one year from date of purchase to use the value of your ticket toward another trip—while others may give you one year from the date of the ticketed departure date. Change fees are typically $100 per ticket for domestic travel, and $200 for international. Some airlines may have rules prohibiting an unused international ticket being applied to domestic travel. When exchanging a nonrefundable ticket for domestic travel on a major airline for a new itinerary at a lower price, the airline will likely offer you a travel voucher for the remaining dollar value. However, certain international tickets may only be exchanged for another ticket having the same or higher price, meaning that you will lose money when exchanging for a ticket of lesser value. Low-cost airlines, on the other hand, are usually less restrictive. For example, Southwest does not charge a change fee, nor do you have to call to cancel your originally scheduled flight when using a nonrefundable ticket. Note that the rules may be different when booking online at independent travel agent sites and for international tickets. As always, be sure to check before you pay!

Other Ways Airlines Deal with Last-Minute Seat Availability Airlines face a dilemma that is quite unique—huge fixed costs and miniscule variable costs. This means that the expenses incurred in flying an aircraft from one city to another remain relatively constant, regardless of whether the flight leaves the gate with 20 percent occupancy or has a traveler in every seat. While the additional (variable) cost to accommodate one extra traveler is perhaps a $3 meal and maybe a small amount of added fuel, airlines dare not sell seats at low prices at the last minute through conventional channels, otherwise they will lose the revenue of the business travelers needing to travel at short notice who are willing to pay a premium price if they have to. Airlines may offload discounted seats at the last minute through consolidators, but tickets purchased through these intermediaries may be associated with significant restrictions. Increasingly, airlines are offloading last-minute fares by way of the Internet, which we will discuss in detail later in the book. Plan, Plan, Plan Travel suppliers, such as airlines, hotels, and car rental agencies, have structured pricing systems that penalize last-minute travelers. This typically targets business people, many who tend to be less price sensitive because they work for a large company that can afford to pay an inflated fare. But the small business person, whose pockets aren’t as deep, can also get caught in a situation where he faces higher fares for last-minute ticketing, and absorbing those costs can be painful. With just a little bit of planning, you can save big, as airlines offer price incentives to book in advance. One good example of taking advantage of the airlines’ restrictions is to include a Saturday night stay in your itinerary, which almost always brings down a fare. Another is to book at least 7 to 14 days ahead—in fact, the farther out from the departure date you can book, the better. For example, 21-day advance purchases may offer better prices than 7- or 14-day advance prices for domestic travel. And 45- or 90- day advance purchases may be the most favorable with respect to ticket prices for travel to Europe. Certain promotions may have advance-purchase requirements detailed in the ‘‘small print.’’ Be sure to check. Start by finding some benchmark prices direct from the airlines, from your travel agent, or best yet, on the Internet. (Refer to Chapter 9 for details.) Wait for the Sale Another valuable money-saving strategy for getting great airfare values is to wait for the sale, just as you would when shopping at a department store.

But there is one advantage in exploiting airline sales over department store sales: Every airline seat is a commodity that rarely changes from day to day, season to season. You never pay for undesirable, out-of-date, or defective inventory! Furthermore, for domestic travel on most major U.S. airlines, frequent flyers who hold elite or premier status—having flown at least 25,000 paid miles on that airline in the previous calendar year—are eligible to upgrade, even when purchasing air tickets at a sale price. Finally, with the notable exception of Delta and Continental Airlines, earning frequent flyer miles or acquiring elite frequent flyer status is generally unaffected on major U.S. airlines by purchasing tickets on sale. A sale is usually started by one airline seeking to boost its cash flow, and its competitors match the sale price within hours. Airlines may sometimes offer added discounts to travelers who will fly at off-peak times or slow days. Taking advantage of sales ties in well to the concept of planning; if you know well in advance when you will travel, you can wait for the sale that will cover the time period you need to travel—typically two to six months following the start of the sale. For example, an airfare sale in early January will typically offer travel at reduced fares from late January or February through May or June. A few important points about airfare sales:

■ Frequency. Airfare sales for domestic flights occur with staggering frequency, and typically within eight to twelve weeks of each other. This ALERT A phantom sale is an advertised sale where fares drop 20 to 30 percent from their standard level. You ideally want to purchase your tickets when fares have decreased at least 33 to 40 percent from their standard (or ‘‘typical’’) price. You can find out the standard price by periodically checking fares to your desired destination(s)—say twice each week over three to four weeks. means that the traveler who can plan at least sixty days in advance will have a high probability of being able to purchase his ticket on sale. But sometimes it’s difficult to detect ‘‘real’’ sales from ‘‘phantom’’ sales. For example, the marathon three-month–long sales that Northwest Airlines has on occasion promoted are ‘‘phantom’’ sales, offering a measly 25 percent discount on selected routes. While this can still be a good value for summer travelers late in making their vacation plans, it doesn’t compare with ‘‘real’’ sale prices, where you should receive a savings of at least 30 to 40 percent off the ‘‘standard’’ leisure/nonrefundable fare. How do you know what are the standard airfares? Simply keep track of fares for your desired destination(s) on a weekly basis for one to two months.

■ Keeping in the Know. To find out about a sale, just open any major city or national newspaper. If there’s an airfare sale at that time, you won’t be able to miss the full-page advertisements placed by the airlines promoting their discounts. Internet sites for travel agencies and airlines will also include sale notices on their home pages. Better still, register for e-mail updates to receive prompt notifications of a sale. This is best accomplished by requesting e-mail frequent flyer statements rather than updates by way of regular mail. Occasionally an airline will have a sale for a specific city pair or region, which may last for just a few days or even a few hours. These are typically not advertised in newspapers, so the only way to find such specials is by checking Internet sites such as Bestfares.com on a daily basis or at least twice each week. Another site is Travelocity.com, whose Fare Watcher enables you to be notified by e-mail when airfares for your selected city pair(s) have dropped below the threshold price you have designated. Similarly, Orbitz.com’s Deal Detector will watch for deals on up to three destinations you specify, at a price equal to or below your desired price.

■ Notable Exceptions. As with every rule, there is an exception to ‘‘waiting for the sale,’’ and that is for travel on peak dates, such as the Wednesday before or Sunday after Thanksgiving, and the weekends before and after Christmas and the New Year. These used to correspond to the dreaded ‘‘frequent flyer blackout dates,’’ which were eliminated by several (though not all) major airlines in 2002, although available award seats for peak dates of travel are few and far between! Sales never occur for these days, since every seat can be sold at a premium price. The ideal time to purchase a ticket and ensure the best price for peak dates is approximately 330 days in advance of travel, corresponding to the actual day the seats are entered into each airline’s computer system. Prices then increase progressively as the date of travel gets closer, with virtually no possibility of a sale on airfares for travel dates corresponding to blackout dates some airlines (such as Southwest) still impose on free (award) seats over peak holidays.

■ First Class. Airfare sales may sometimes include discounted fares for first and business class, frequently offering 40 to 60 percent off standard premium prices. When booking online or by telephone, always check out the price of a premium seat Vary the Time or Date Varying the time of day or the day of the week on originating or return flights can sometimes have a dramatic effect on price. Checking sensitivity of airfares to changes in time or date of travel can be done on the Internet or phone (though travel agents may be reluctant to spend considerable amounts of time searching for great airfares, thanks to the reduction or elimination of their commissions). For example, suppose you want to travel late on a Friday afternoon. You probably will find fares to be higher than those for Friday morning, because of the high volume of business travel that necessarily occurs at the end of the work week. If you can be flexible and change travel times by just one to two hours on the outbound or return segment, you can sometimes cut the ticket price significantly! Again, the Internet proves to be an invaluable tool in figuring out when to travel at the best fare. One of our favorite Web sites, Orbitz.com, allows you to select ‘‘anytime’’ rather than a specific departure time, then lists every possible combination of outbound and return flights with the number of stops you’ve requested on your airline of choice. As you click to view any airline by zero, one, or two stops, the associated airfares are displayed for each itinerary from lowest price to highest.


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