The psychology of yield management ?

[ozfflyer]

The psychology of yield management

Have been watching fares to USA very closely, specifically early next year.

With recent announcements, BNE/SFO & BNE/ORD nonstops probably going to start in April & Fiji Airways getting 2 new A359s, which means around an extra 360 or more, seats a week on direct SYD/LAX, it seems supply is increasing (although the BNE/SFO is just a redeployment of the extra BNE/LAX, so BNE/LAX will go from 10/week to daily) while demand is decreasing, with recession or as some like to call it, a slowing economy.

Have seen fares recently as low as AUD$750 return/adult SYD/LAX/SYD with some price matching or in QF case, fares around $900 return.

Latest is that these fares are increasing, even though have been told by airline employees that at $750 return in low season, they still aren’t selling.

Over the years, have spoken to many retailers of all sorts of goods/services & quite a few have said, that sometimes when they have a price reduction sale, some customers convey, that there must be something wrong with goods/services & they won’t buy them as too cheap, so the retailers put the prices back up after the price reduction sale & some customers, who would not buy the same thing at the lower price, but them at the higher price.

So it this is what is going on with SYD/LAX fares ?

The airlines aren’t selling many seats at $750, so testing what happens when put the price up ?

Still think every airline is much better off selling cheap airfares through packages, eg. instead of $750 return, work in with a wholesaler to sell $999 fares with $250 “FREE” credit to be used on car hire, accommodation etc. That doesn’t coughise the price so much & create a benchmark.

Had someone who doesn't fly much, tell me, they had to fly BNE/SYD at short notice recently & was price gouged by airline as had to pay $300 one way, when she thought all return fares BNE/SYD/BNE were $199 or less.

Spoke to a domestic airline sales manager a while back, who told me, that through sales history, they can see that as little as $1 difference in fares, can make a huge difference to sales.

Personally, having worked in retail for decades, I think that’s more about price points, eg. $99 is much much less than $100 in people minds(way more than $1 difference) & $77 is closer to $50 than $100 in peoples minds. The $77 thing is somehow related to $7 being closer to $5 than $10.

Noticed one car company is doing $777 off, with 7 years warranty.

 

[MEL_Traveller]

Companies can't advertise a 'sale' unless the price is actually a 'sale'. So QF and other airlines routinely increase prices for a period of time so that they can advertise the sale price. Saw this the other day with SYD-LHR where the cheapest exonomy fare being offered was $3918 for the period now to June 2020. Obviosuly no one will pay that, but a few days later the 'sales' were back to regular prices.

MEL-SYD is the same... there'll be a few days every now and then when the price is sky high.

I don't see $750 to the USA as a bargain when Air France is offerin Europe return for $1001, and Asian has lead-in brices to Europe from SYD for $890.

Planes are more fuel efficient, need fewer cabin crew and are cutting out intermediate stops which would otherwise be costly to the airline. At the same time premium fares are around the same level. There's plenty of room to move with economy pricing which pays the fuel bill.

 

[ozfflyer]

Companies can't advertise a 'sale' unless the price is actually a 'sale'. So QF and other airlines routinely increase prices for a period of time so that they can advertise the sale price. Saw this the other day with SYD-LHR where the cheapest exonomy fare being offered was $3918 for the period now to June 2020. Obviosuly no one will pay that, but a few days later the 'sales' were back to regular prices.

MEL-SYD is the same... there'll be a few days every now and then when the price is sky high.

I don't see $750 to the USA as a bargain when Air France is offerin Europe return for $1001, and Asian has lead-in brices to Europe from SYD for $890.

Planes are more fuel efficient, need fewer cabin crew and are cutting out intermediate stops which would otherwise be costly to the airline. At the same time premium fares are around the same level. There's plenty of room to move with economy pricing which pays the fuel bill.

all those fares are loss leaders. eg. out of $750 return SYD/LAX/SYD about $230 alone are govt taxes, so the airline netts $520 less some agents commission. For kids who occupy the same seat, the nett is even less. I think in this day & age, an Australian airline like Qantas, needs an average fare of around $1200 inc govt taxes to break even. Maybe a little less at Virgin/Air NZ/Fiji Air.

Luckily many business types pay $3k or more for same thing to go at last minute or on fully flexible tickets.

$3918 SYD/LHR/SYD was probably a last minute fares & yes plenty of business types will pay that, without even blinking. Constant price reduction sales are more a sign of the failing economy than anything else.

 

[MEL_Traveller]

$3918 SYD/LHR/SYD was probably a last minute fare...

The $3918 was the cheapest listed fare for the entire year going forward. Every flight, every day. I suspect part of it is so they can legitimately claim a 'sale' when fares return back to lower levels.

The cost of flying an aircraft was recently published here on AFF. Not sure it comes close to the $1200 per passenger.

 

[ozfflyer]

The $3918 was the cheapest listed fare for the entire year going forward. Every flight, every day. I suspect part of it is so they can legitimately claim a 'sale' when fares return back to lower levels.

The cost of flying an aircraft was recently published here on AFF. Not sure it comes close to the $1200 per passenger.

no I think you've definitely got that wrong. There are plenty of economy fares SYD/LHR/SYD on Qantas for less than $2k & many less than that. There have been many airlines doing SYD/EU/SYD for close to $1k & many much better airlines than Qantas, so Qantas has to match their fares to some degree.

Airlines don't often increase prices. There are published levels which they might increase every so often, but sale fares are routinely reduced fares, off published fares, cos they don't think they are going to fill a flight.

There are perhaps a dozen different Qantas economy fares SYD/LHR/SYD on same flights & 3 or 4 business class fares etc. all with different conditions, eg.

1) refundable or not

2) must be booked X number of days in advance(to strop business travellers who book at last minute, using them)

3) min stay

4) only available over certain period

the list goes on & it's very long

 

[MEL_Traveller]

no I think you've definitely got that wrong. There are plenty of economy fares SYD/LHR/SYD on Qantas for less than $2k & many less than that. There have been many airlines doing SYD/EU/SYD for close to $1k & many much better airlines than Qantas, so Qantas has to match their fares to some degree.

Airlines don't often increase prices. There are published levels which they might increase every so often, but sale fares are routinely reduced fares, off published fares, cos they don't think they are going to fill a flight.

There are perhaps a dozen different Qantas economy fares SYD/LHR/SYD on same flights & 3 or 4 business class fares etc. all with different conditions, eg.

1) refundable or not

2) must be booked X number of days in advance(to strop business travellers who book at last minute, using them)

3) min stay

4) only available over certain period

the list goes on & it's very long

Correct. But for a short period of time the advertised fare was $3918. Cheapest. For the whole booking period going forward. Now today there might well be fares as you describe. But for that short window, that was the fare. And the only fare. Which was probably the full published economy fare.

 

[ozfflyer]

Correct. But for a short period of time the advertised fare was $3918. Cheapest. For the whole booking period going forward. Now today there might well be fares as you describe. But for that short window, that was the fare. And the only fare. Which was probably the full published economy fare.

no way that would have been the case. The search engine you were looking at, probably crashed. Technology is only good when it works.

 

[MEL_Traveller]

no way that would have been the case. The search engine you were looking at, probably crashed. Technology is only good when it works.

it was the qantas website on the current 'deals' page, and when you clicked on the fare finder there was a single constant line through to the end of June 2020.

No different to when they advertise the cheapest MEL-SYD close to $300 one way. Wait a day and the fares will be back down to usual levels.

(Edited: that high base fare is still there now, but at the $3200 level. Although now they have loaded much cheaper fares in at $1200 upwards)

 

[ozfflyer]

it was the qantas website on the current 'deals' page, and when you clicked on the fare finder there was a single constant line through to the end of June 2020.

No different to when they advertise the cheapest MEL-SYD close to $300 one way. Wait a day and the fares will be back down to usual levels.

(Edited: that high base fare is still there now, but at the $3200 level. Although now they have loaded much cheaper fares in at $1200 upwards)

obviously their was a glitch on the qantas site at the time. It's always crashing. I think their website designer should be sacked.

MEL/SYD for $300 is a standard last minute type fare.

If you want to fly Qantas MEL/SYD between 1700 & 2000 today the cheapest remaining fare right now is $320.

 

[FrankP]

Don’t have anything useful to add, just wanted to say thanks those contributing. I rarely/never get a chance to ‘watch’ the fares, usually just have to shop and pay in a timeframe that works for me to ensure i get the flights I need, and this thread is giving me a lot of very good info for when I next have to start bookings.

 

[TheInsider]

obviously their was a glitch on the qantas site at the time. It's always crashing. I think their website designer should be sacked.

MEL/SYD for $300 is a standard last minute type fare.

If you want to fly Qantas MEL/SYD between 1700 & 2000 today the cheapest remaining fare right now is $320.

MEL-SYD for about $300 is about the 3rd lowest price!

 

[ozfflyer]

MEL-SYD for about $300 is about the 3rd lowest price!

this is why it pays to book as far in advance as possible. The last thing airlines want to do is, dump seats at last minute & give some consumers the idea that they should wait.

We used to fly to USA every Xmas school holidays & it was always the case, that the cheapest fares, were available as soon as they were loaded in Jan/Feb. We even had a travel agent book the outbound, before the inbound flights were even loaded. Things have changed, but suspect that's due to vastly increased capacity & the economy. Know one obviously knows how bad the recession will be, but think the smart operators are filling their aircraft with as many bums in seats as possible as far ahead as possible.

eg. there are currently only 16 nonstops a week BNE/LAX (10 X QF & 6 X va) this will drop to 13 when QF switch 3 BNE/LAX to BNE/SFO. VA can't really cut back any flights or they will start losing business people who want or think every airline should or does fly daily to a destination.

Very different on a domestic route like MEL/SYD which is apparently the 2nd busiest route in the world.

QF or VA can easily cancel 1 or 2 flights a day & probably the worst delay those who were booked on those cancelled flights, will be 60 mins for the next flight.

Suspect Qantas would rather maintain $300 + fares for MEL/SYD between 1700 & 2000 today, even if they have dozens of empty seats on every flight & let them go empty.

Imagine if some business person who paid his/her own fares ($300 each way) ending up sitting beside someone who said they got a $99 fare booked last night or same day !!!

Have noticed that sometimes it is possible to get a last minute frequent flyer seat, same day of travel, but generally not in peak hour.

The smart business traveller who pays their own fares, might be a Qantas/Virgin club member or can somehow get into the lounge & might book on the last flight of the night say SYD/MEL say at 2100, either paid or frequent flyer. They get to airport earlier than expected & ask nicely at Qantas/Virgin club if they can get on an earlier flight. If initially the person at front desk says no, they often keep asking & often they get on an earlier flight.

If they don't get on an earlier flight, they can always do some work or have drinks/food in lounge.

 

[ozfflyer]

Don’t have anything useful to add, just wanted to say thanks those contributing. I rarely/never get a chance to ‘watch’ the fares, usually just have to shop and pay in a timeframe that works for me to ensure i get the flights I need, and this thread is giving me a lot of very good info for when I next have to start bookings.

hey when you think about it, it's just a game of chicken. Book now or you'll pay more, they say, but will you ? If you want to fly to USA 22DEC then yes you might need to book now for cheapest fare, but if you are flexible by day or 5, you can make huge savings. Sometimes moving preferred date of travel by a day, can save $1000 & if for a family of 6 that's huge. Best bet is to find a website where you can search return fares for 49 date combos. ie. put your preferred dates of travel into a search engine & then 3 days either side. Then talk to a travel agent or wholesaler who specialises in that destination. Unfortunately you can search 49 date combos for open jaw itineraries like SYD/SFO, LAX/SYD.

One example of how a travel agent can find cheap fares in seconds, that are almost impossible to find online.

We wanted to go to USA in school holidays but didn't want to spend much, nothing like fares quoted on qantas/virgin sites.

So we got onto a wholesaler who only does USA/Canada. They found us a fare in a matter of minutes, very close to our preferred dates, as follows

SYD/FIJI, 2 nights there, Fiji/san fran, then 3 weeks in USA, then LAX/SYD direct(via Fiji). The fare was so much cheaper than all nonstops SYD/LAX/SYD it was ridiculous. From memory the total for 4 people was close to $3000 less. We spend $400 on nice Fiji accom, ended up close to $2600 better off & we still got Qantas ff pts.

& the best part, all flights were nonstop except LAX/SYD on brand new A330 aircraft & we had the option to bid on upgrade to business class, with minimum bid of about $800 for Fiji/San Fran sector.

 

[dajop]

The cost of flying an aircraft was recently published here on AFF. Not sure it comes close to the $1200 per passenger.

Yes, and if they're not filling all the seats anyway, as long as they cover the variable costs (fuel for extra weight, catering) then the airline is ahead compared to letting the seat go empty. So you can easily sell 20 seats on a 300 seat plane which only cover variable costs plus 10%, with the other 280 seats to cover the fixed costs (capital, crewing, airspace charges etc) and will make more money than letting the plane go out with those 20 empty seats.

I suspect there are various reasons why FJ are not getting good uptake on these $750 fares:
1) Duration longer than non stops
2) FJ not a well known brand
3) AUD woes making US travel less attractive for the price sensitive end of the market (AUD at lowest since March 2009)

 

[MEL_Traveller]

obviously their was a glitch on the qantas site at the time. It's always crashing. I think their website designer should be sacked.

MEL/SYD for $300 is a standard last minute type fare.

If you want to fly Qantas MEL/SYD between 1700 & 2000 today the cheapest remaining fare right now is $320.

But the $300 is not the lowest available for the next year.

When QF has their 'non sale' period, the base fare MEL-SYD - that is, the cheapest you can get it, even off peak - can be very expensive. Then they resume normal programming and the fares go back to being reasonable.

The peak fare today is irrelevant to the advertised cheapest price.

 

[ozfflyer]

Yes, and if they're not filling all the seats anyway, as long as they cover the variable costs (fuel for extra weight, catering) then the airline is ahead compared to letting the seat go empty. So you can easily sell 20 seats on a 300 seat plane which only cover variable costs plus 10%, with the other 280 seats to cover the fixed costs (capital, crewing, airspace charges etc) and will make more money than letting the plane go out with those 20 empty seats.

I suspect there are various reasons why FJ are not getting good uptake on these $750 fares:
1) Duration longer than non stops
2) FJ not a well known brand
3) AUD woes making US travel less attractive for the price sensitive end of the market (AUD at lowest since March 2009)

yes but when consumers see regulary $750 fares, they think that is the new benchmark & have heart failure when they get told the fare for departure 2JAN, back few weeks later, is $2500. They then think they are being ripped off, when the $750 is a loss leader. Airlines need to maintain fares at a reasonable level. When so called full service airlines try to compete on price with LCCs, then the race to the bottom, will only end in tears.

re your points above

1) SYD/NAN/LAX is only around 2-3 hours longer than nonstops + then have the option of a stopover for as many days as you want

2) FJ is a well known brand, but it might not be as well known that they have 12 or 13 flights a week into USA from OZ/NZ via Fiji. Some would think they only fly to Fiji. Then again when they were called Air Pacific, they saw it fit to change name to Fiji Airways

3) what AUD$ woes ? It virtually hasn't changed in last 10 months + US resorts adjust their pricing to suit Australians & the AUD$

eg. 10 days skiing in USA is cheaper than 10 day in NZ, inc airfares, which is nuts, when you consider the difference in flying time & that NZ skiing is very very basic & their small ski hills often close due to winds from Antarctic

 

[MEL_Traveller]

yes but when consumers see regulary $750 fares, they think that is the new benchmark & have heart failure when they get told the fare for departure 2JAN, back few weeks later, is $2500. They then think they are being ripped off, when the $750 is a loss leader. Airlines need to maintain fares at a reasonable level. When so called full service airlines try to compete on price with LCCs, then the race to the bottom, will only end in tears.

This is a recurring theme in your posts.

What evidence do you have to back it up (ie that consumers have 'heart failure' when they can't get a cheap fare at a peak period)?

 

[ozfflyer]

But the $300 is not the lowest available for the next year.

When QF has their 'non sale' period, the base fare MEL-SYD - that is, the cheapest you can get it, even off peak - can be very expensive. Then they resume normal programming and the fares go back to being reasonable.

The peak fare today is irrelevant to the advertised cheapest price.

yeah I think you totally misunderstand the way airline fares work. The lowest everyday one way fare on Virgin (& probably Qantas) is T class at about $165 (S & M class cheaper are also in system, but are often zeroed out or used for sales). The cheapest return is about $314. When yield look at flights, a week, 2, 3, 4 weeks out & they see some flights on some days aren't selling, they drop some special fares into the system, but hardly even in Mon-Fri peak hour, which is roughly for departures 0600-0800 & 1630-1900 when QF/VA make most of their profits.

 

[dajop]

1) SYD/NAN/LAX is only around 2-3 hours longer than nonstops + then have the option of a stopover for as many days as you want

2) FJ is a well known brand, but it might not be as well known that they have 12 or 13 flights a week into USA from OZ/NZ via Fiji. Some would think they only fly to Fiji. Then again when they were called Air Pacific, they saw it fit to change name to Fiji Airways

3) what AUD$ woes ? It virtually hasn't changed in last 10 months + US resorts adjust their pricing to suit Australians & the AUD$

eg. 10 days skiing in USA is cheaper than 10 day in NZ, inc airfares, which is nuts, when you consider the difference in flying time & that NZ skiing is very very basic & their small ski hills often close due to winds from Antarctic

1) Yes, but many people will look for flights that are quickest. So will discount that, and many probably not interested in stopover in Fiji, particularly if only going for short time

2) Still not a well known brand. Also even though they are part of QFF, many probably are not aware of potential to earn QFF (and do the low fares even earn them?). So the decision is QF for $300 (or whatever more) ... goes directs ... you know you will earn some FF points, and is a trusted brand.

3) Most Australians aren't travelling to the US or LAX for ski resorts. You look at this from a certain viewpoint. This is surely a niche market in terms of overall airline traffic to/from US (YVR I suspect might be different). Most are travelling to see the sights in the USA or VFR or business. LA, Las Vegas, NY or SF hotels don't adjust their pricing to suit the AUD. AUD has declined about 8-9% in last 12 months. Not a biggie, but the uncertainty about what could happen between then and travel may put some people off.

 

[ozfflyer]

1) Yes, but many people will look for flights that are quickest. So will discount that, and many probably not interested in stopover in Fiji, particularly if only going for short time

2) Still not a well known brand. Also even though they are part of QFF, many probably are not aware of potential to earn QFF (and do the low fares even earn them?). So the decision is QF for $300 (or whatever more) ... goes directs ... you know you will earn some FF points, and is a trusted brand.

3) Most Australians aren't travelling to the US or LAX for ski resorts. You look at this from a certain viewpoint. This is surely a niche market in terms of overall airline traffic to/from US (YVR I suspect might be different). Most are travelling to see the sights in the USA or VFR or business. LA, Las Vegas, NY or SF hotels don't adjust their pricing to suit the AUD. AUD has declined about 8-9% in last 12 months. Not a biggie, but the uncertainty about what could happen between then and travel may put some people off.

re point 1 above. I think many/majority are looking for cheapest, but maybe they don't want to fly via China, Taiwan, Korea or middle east, which is where FJ & NZ fit in.

re 2) yes you earn QF ff pts on all FJ fares but not as many on cheapest fares.

Suggest QF in peak might be way more than $300 more, maybe more like $1000 more per person & multiply that by however many in your group/family & it starts to add up. QF trusted ? Crash too often for me.

re 3) many 1000s of Australians fly to USA to ski in DEC/JAN/FEB/MAR/APR

as mentioned, US resorts adjust their pricing to suit AUD$. If eg. Disneyland sees drop off in Australians, they simply reduce prices to Australian wholesalers. I looked at AUD$/USD$ rate over last 10 months & not much change there, but yes it was around 74 cents in July & 72 cents in Sept.

I think Canadian marketers love saying the AUD$ is close to the CDN$ giving the impression that Canada will be much cheaper than USA, which isn't true, but seems plausible to many, without looking into it.