The dynamics of airfare pricing are unique.
In most industries, there is an accepted ‘retail value’ for each product. Consumers expect the price for a particular product to be similar across the board with just a slight variance. For instance, a pair of shoes that retails for $100 will always be sold at a price close to $100. It would be unacceptable for a retailer to sell the same shoes for $300.
However, in the airline industry, the opposite is true. It is extremely common for two passengers to find themselves sitting right next to each other on a flight only to discover that one has paid double of the other.
Believe it or not, this is a huge factor in how the airlines make money.
To understand the reasoning behind this, let’s start with a quick fact: The actual value of a seat on an airplane is worth more or less to different types of travelers. Business travelers are willing to pay more – a lot more – than leisure travelers going on vacation. Since a business person’s price threshold is higher, airlines will try to charge as much as they can get. On the other hand, a leisure traveler has a much lower price threshold, and might get turned off if the price is too high.
In addition, airlines are very eager to make sure that all seats are sold so that they do not take a loss on empty seats.
The challenge is to ensure that they have a good ratio of higher priced business fares to lower priced leisure fares so that they earn the maximum revenue for each flight.
This ‘juggling act’ is why you will see prices go up and down, sometimes even multiple times a day. Airlines are always adjusting their inventories to ensure they have enough seats left for higher priced fares, while being wary not to be left with empty seats.
There are two reasons you need to understand the airfare pricing dynamics:
- It will help you find the lowest prices for your clients
- You will know how to respond to clients who have found cheaper rates elsewhere that you do not have access to. In some cases, just because they saw advertised rates, does not mean that they qualify for them.
There are two main types of airfare offered by airlines: Published (or Commissionable)and NET.
Published (Commissionable) Fares
Published fares (AKA discounted, discount off published or discount published) are prices that are ‘published’ by the airline. They are readily available online for anyone to see. Therefore, if a fare is published, it will most likely be the same price regardless where you purchase it. Travel agencies, OTAs, and even the airline’s own website will all pretty much show the same price.
The way travel agencies and OTAs make money is that the airlines offer them a small commission. Actually, a very small commission. A travel agent can choose to forgo some of their commission in order to give the client a lower price. If the itinerary your client is looking at only has a published fare available, you will not be able to save them significant money. (More on this in Chapter 6)
Published fares go up and down very often. As mentioned before, this is so airlines can maximize revenue.
Do not take for granted that the airlines always offer commission. Sometimes, they offer no commission at all! These fares are called ‘non-commissionable’ fares. If you ever hear the term commissionable fare, this means that there is at least some commission to be made. Non-commissionable means you make zero, zip, zilch, nada! (See section ‘How It’s Done Today’ in Chapter 6 for some reasons agencies would sell such fares.)
NET fares – short for NEGOTIATED – are offered to consolidators or agencies at a special negotiated rate that is often much cheaper than the published rate. The amount of the discount will depend on the contract between the airline and the reseller. As you can guess, the bigger players get bigger discounts based on their overall volume. Also, since corporate clients are likely to pay more, airlines typically offer more NETs to leisure contracts than corporate contracts.
The actual rate for NET fares typically doesn’t go up and down like published. However, the airlines will carefully manage their inventory and make sure not to offer too many NET fares on a particular flight. NET fares typically have an advance purchase requirement, meaning that they are only offered up until a certain time before the departure date – anywhere between 3 days to 2 months. On the other hand, airlines sometimes also offer last minute NET fares for seats that they were counting on selling for full price but have not.
Unpublished NET fares are never advertised on OTAs or airline websites. As a matter of fact, they are not allowed to. This allows airlines to sell lower priced NET seats, while not losing out the revenue from business travelers who will still purchase full-priced fares.
NET fares are also sometimes referred to as private fares. Although technically there is a slight difference, for practical purposes they are basically the same.
The real discounts on NET fares are on international routes. When it comes to domestic, very often the published fare will actually be cheaper than the NET.
In the diagram below, you will see a simple comparison between a Published and NET fare. For this illustration, we have chosen a typical international first class rate.
There is one more – albeit very uncommon – fare type called opaque. Opaque fares prohibit resellers from showing customers the airline name, flight number, or flight times until after the sale. All they show you before the sale is the date, and the from/to cities.
Opaque fares are only used by such OTA sites as Priceline and Hotwire. As an agent, the only time you will encounter an opaque fare is from a client who has found it on one of those sites. But again, they will not know any identifying information of the actual flight, which is not preferred for the vast majority of travelers.
Opaque fares are typically only found for economy, and not premium seats (i.e. business or first class)
Tip from the Pros: You will learn in Part Two that luxury air works a bit differently than economy. This is especially true when it comes to how airlines price their fares. However, the basic principles of Published and NET fares are pretty much the same.
Tip from the Pros: Airlines refer to the price of the actual airfare before fees, taxes, and any surcharges as a base fare. This is true for both NET and published fares. The combined price of the base fare and all the other charges and fees are the final ticket price. Whenever you are quoted a fare, just make sure you know what is being quoted. Is it just the base fare, or is it the final ticket price?
Chapter 5 Takeaways…
- Not all travelers get the same rates. Business travelers are willing to pay more. Airlines differentiate between leisure and corporate travel
- Airlines always try to get the most money per seat, but want to avoid empty seats
- There are two main types of airfare offered by airlines: Published and NET
- Published fares are offered by the airlines to everyone. Travel agencies make only small commissions
- NET fares are negotiated between the airlines and contract holders
- The biggest NET fare savings are on international itineraries