Why your ticket never comes cheap
You probably know that feeling when you want to buy an airline ticket, only to discover that the price of yesterday isn’t the price of today. In this blog, we’ll explain the basis of the airline ticket strategy.
Yield Management
Throughout the history of aviation, airlines have been using many different methods and strategies to boost bookings and increase their turnover for every flight. What has been working best so far is a sophisticated revenue strategy called yield management. With that strategy, airlines charge different prices to different passengers in order to maximise revenue.
Different passengers.
In general, there are two types of passengers on every flight; the “Go-at-any-price group” and the “Value for money group”. The former needs to be on a specific flight because of a business meeting, a family emergency or -according to movies- a spontaneous urge to express love. The latter group only books tickets when the price is right. This group often buys tickets to go on holiday or to go on a regular family visit.
The Dilemma
If the airline only focusses on the “go-at-any-price” group”, the plane will not get filled. If the “go-at-any-price” is targeted, the plane gets filled but not for the maximum amount of money possible. So how to proceed…
The airline’s goal is simple; make as much money as possible from a fixed amount of seats.
The Maldives is a popular holiday destination and airlines know that leisure passengers tend to book relatively early in the year. They book many months before their summer holiday in order to ensure their rest at their chosen date/time. Fares for these routes will be steep early on, adjusted later and in the end, when demand is higher than supply the prices go up again. Which delivers an out of shape U if you look at the prices per seat.
Packed with business passengers, London — Frankfurt is one of the busiest routes. As it is a business route, the price rises drastically closer to the departure. When the flight is (almost full) the airline will even go as far as offering the early bookers a compensation if they are willing to give up their seat. If all goes to the airline’s plan, the last minute, high fare-paying passengers can then be booked onto what was previously a full flight. Which delivers an increasing slope if you look at the price per seat. So next time when an airline offers you money to give up your seat, know how much you can ask...
New technology
With new technology such as data mining and great examples like Amazon, airlines can now profile customers in unprecedented ways. By bundling tactics, product-suggestion analytics and dynamic pricing they can create customized recommendations for additional purchases. Both at the original point of sale and over the course of the travel journey (think about on board sales).
However, even with all that focus on pricing strategies, airlines aren’t able to fill their empty seats. On average the passenger load factor (PLF) of RyanAir -the most efficient airline in the world- is 96%.
- Easy-jet 92%
- Transavia 90%
- KLM 88%
- Vueling 84%
- Southwest Airlines 84%
- British Airways 81%
The low-cost carrier needs a high PLF, in order to make all those low price seats profitable. Everyday 30,0000 planes -with an average capacity of 200 pax* (passengers) are flying above Europe. On average 6 million passengers are transported every single day. According to the PLF data (let’s take a 90% average), 600,000 seats are empty on a daily basis.
The question arises: how great can customer profiling and predictive state-of-the-art pricing strategies fill these 600,000 seats?
This industry needs an innovative, disruptive idea that benefits everyone.
Meet AAVIO
When a passenger arrives at the airport, he/she is able to activate the Dapp by paying a small fee in AAVIO tokens. Once activated, the app shows all departing flights from that particular airport within 6 hours prior to departure. Four hours before departure, the app receives the number of empty seats and offers them directly to its users for a fixed rate… This information is only available at the airport as people really need to board quick. This is where the fun starts…
F*CK IT**
As the passenger has no idea how many others are luring for that particular flight, he/she needs to decide FAST. This is where the F*ck it mentality comes into play. Sometimes you just need to throw yourself out of your comfort zone. That hard decision is almost always taken with the crystal clear expression “F*ck it”.
So to answer the title statement, your ticket never comes cheap because airlines are still working with (semi)old business strategies.
AAVIO is under active development. Join our community to stay informed about our project and upcoming pre-sale/token sale.
*The average seat capacity is based on the aircraft types that fly the short routes in Europe.
