Summer vacations are coming back. So are the airline algorithms that know how much you are prepared to pay for them.
In the leisure market, domestic air travel is normalizing in terms of both bookings and fares. Crucially, vaccinations are making people start to book further out: Online travel agency Skyscanner estimates an average booking horizon of around 75 days in March, compared with a low of 55 last July.
While most businesses charge the same price for the same product, airlines’ secret sauce is so-called price discrimination: selling equivalent seats at different rates to different people. As a result, they don’t just need demand to be stronger, but also somewhat predictable.
Because the summer “seasonality” is starting to look more normal, “we will be able to hold our yield-management strategies, especially when we talk about the weekends of the peak periods,” Spirit Airlines Chief Commercial Officer Matt Klein recently told analysts.
Traditionally, airlines use two different teams to manage fares. The pricing department sets a range of prices for each trip and cabin type. Responding to demand then mostly falls to the yield- or revenue-management department, which chooses how many tickets of each class to make available. As seats in one fare category fill up, buyers are bumped to the next.
