11/05/2023
Why are airfares so high now?
Aviation is recovering from a Global Pandemic, with some operators unable to operate passenger flights for almost two years.
Recovery takes time - parked aircraft must be restored to service, flight crews and staff brought back and re-trained for Operations.
Airfare pricing has undergone a major systems change over the past 20 year, with ever-more sophisticated algorithms embedded in Pricing and Revenue Management (PRM) systems.
Methodologies include techniques such a nested-logit models and price discrimination.
Price discrimination is an economic term for charging different prices to different consumers for the same product, e.g. an airline seat.
You may have noticed this when searching for hotels or flights in recent years, especially when revisiting a city pair route and flight, and just minutes before the price was lower.
Online Travel Agency (OTA), hotel and airline websites often say things like, “23 are now looking at this date” – whether it is a hotel room, or airline seat on a flight, on a day.
The more interest shown, the more the algorithm detects demand.
This is Price discrimination.
