Have you ever wondered how airlines calculate ticket prices or why some times it cost more to fly 500 miles then to fly half way around the world. Clearly it has got nothing to do with the length of the journey. So what does it have to do with? We did some research and here is what we found.
Airlines set their ticket prices based on a number of different criteria. One of the primary sources the airlines use to set ticket prices is based on the popularity of the destination. For example, you will find the ticket price to Orlando, Florida; will not fluctuate from month to month and or from airline to airline.
It also depends on demand to a certain destination, ticket prices to Europe in the summer will always cost more then then tickets in the winter because it's high season and people are willing to pay top dollars for that ticket. While travel to Iceland in the winter is minimal, airlines will reduce the price of a ticket as much as possible.
A ticket price also has to do with the competition. If a competing airline offers a price to a popular location like Las Vegas, at a discount rate, the other airlines must match that ticket price, or lose the travelers to that airline. When an airline sets a ticket price based on a competitor's price of a ticket, the airline then has to adjust and perhaps change the price of the ticket after the current promotion is over in order to meet their profit margins.
It is also required by law that an airline keep a certain amount of sale tickets. According to airline executives, the percentage is 7 to 10 percent of each flight. These fares usually appear online in the mid-night hours, 2-4 am.
There are a lot of variables that are out of the control of the airlines. The price of gas has a major factor in the setting of ticket prices, as well as the estimated amount of travelers to a certain destination. An airline that will fly with at 60% passenger capacity will need to adjust ticket prices to the point that the airline can break even. An airline that is operating at a full capacity of a flight, will often times discount that particular ticket price to achieve close to 100% capacity on that particular flight.
As the airline industry grew, there was a need to make the process of selling, and storing information more efficient. For this the airlines invented the GDS (global distribution system). Today there is five global GDS systems and with each system there is a unique algorithm that calculates ticket prices. It has become so complicated over the years, that no one has a clue how the systems calculate ticket prices and that why it sometimes cost less to fly from New York to Sydney then to fly from New York to Boston.
