By Catharine Hamm, Los Angeles Times
11:00 AM EST, November 11, 2012
Question: I have always wondered about airline companies' yield management systems. Do airlines track only sales, or do they track inquiries as well to determine the demand in their yield systems? Let's say I'm interested in a round-trip ticket between Los Angeles and Tokyo, so I do the flight search on various airlines' sites and on several travel sites as well. Because I transmit a lot of inquiries about this specific Los Angeles-Tokyo route on a specific day and time, will that show up as increased demand and cause the fare to be adjusted up as the result?
Answer: Before we get to the answer, let's talk about yield management.
Excuse me, but I can see you are now going to turn the page or, worse, go back to bed because you're thinking, "Do I need a course in Econ 101?" No, you don't. But you do need to know why an airline ticket on Monday is $200 and by the following Monday is $350. The culprit, often, is yield management (although you might also factor in fuel prices).
George Hoffer, who teaches economics at the University of Richmond, explained the basics to me. "Yield management is, in essence, a more sophisticated term for the age-old practice in economics called 'price discrimination,' charging different prices to different people for essentially the same good or service without cost differences justifying the price differential," he told me in an email.
That means that if you're a business traveler who suddenly has to go to Miami from the West Coast, you're probably going to have to pay more than the leisure traveler who booked his ticket months ago. If you're the business traveler, you need to be there at a precise moment, and you'll pay for it. It's all about maximizing revenue, which evolving technology has made easier.
"Computer technology has made this system of pricing a science," Hoffer said.
The system also has, perhaps, an element of gaming, said Henry Harteveldt, airline and travel analyst at Atmosphere Research Group, based in Cambridge, Mass. The airline is betting on whether demand will remain unbated even after the low-cost seats are gone.
And now, the answer to Liao's question: Harteveldt said it's unlikely that an inquiry would trigger a fare increase. "Any price differences [Liao] would see … would reflect the number of seats booked versus the number unsold." In other words, if you're buying a ticket to Moscow for the dead of winter and that flight you eyed is not selling well, it wouldn't make sense for the airline to raise the price on the off-chance that Moscow might suddenly turn into South Beach.
That doesn't mean that websites aren't paying attention to what you're paying attention to. Charlie Claxton, the vice president of creative strategy at Produxs.com, a website user experience design firm based in Seattle, knows that information you reveal, intentionally or not, to a website may become part of your online shopping experience. Listening to him is fascinating as he talks about the online user's "cognitive bias" or "loss aversion."
Even if you're not giving out private information, how you react on a website speaks volumes about you, Claxton said. Let's say you see an airfare listing that says, "Only one seat left at this price." If you're a person who has an aversion to loss, that just might be what pushes you into the purchase. So how do you know if it's true or if it's just a site trying to get you to buy the seat?
I told Claxton that the whole notion of an online site getting into my head gave me the creeps.
"There's a huge element of creepy," he said, "but typically what we find is that when the value of the offer is great enough to offset 'the creepy,' the user doesn't find it creepy anymore."
The way airlines sell tickets isn't at the point where they can predict completely what makes you buy. For now, it remains unnerving thinking that complex mathematical formulas, sprinkled with a little bit of pricing pixie dust, may determine how much you're going to pay for your ticket. Oh for the days when the flying, not the buying, was magic.
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