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  • This is a flight booking website called Fareboom.com.

  • And this is a fare forecasting feature.

  • What this thing does is predict flight prices using a sophisticated machine learning algorithm.

  • It helps travelers make buying decisions: Should they buy their tickets now or later?

  • But, waitwhy is it necessary to predict flight prices in the first place? And why do they constantly change?

  • American Airlines, the largest US carrier, can change about half a million prices every day.

  • And sometimes, the prices for the same service class, on the same flight, can rise or fall multiple times within several days.

  • So, what's going on?

  • Obviously, airlines try to maximize their profits, just like any other business does.

  • This means that carriers have to sell as many seats as possible for a flight and - at the same time - for the maximum price.

  • It's inefficient if an aircraft takes off almost empty with a couple of expensive tickets sold.

  • And it's also inefficient to occupy the entire aircraft, but for the lowest cost per seat.

  • That's why airline revenue managers engage in a balancing act

  • between finding the highest price and filling as many seats as possible.

  • To reach this balance, airlines must first understand their customers.

  • Carriers track traveler purchasing behavior assuming that they

  • are divided into two major groups: leisure and business travelers.

  • And it looks pretty straightforward.

  • Leisure travelers are sensitive to prices and plan their trips in advance, sometimes months before departure.

  • So, you have to sell cheaper tickets to leisure travelers and do it earlier. And, this will help you fill more seats.

  • Business travelers, on the other hand, need more flexibility and usually book days before departure.

  • You'll have to increase the prices as the departure date approaches to efficiently capture the business segment of your customers.

  • As the fare is employer funded, business travelers don't care as much about cost.

  • Not a very precise approximation of the customers, right?

  • But if you look at the general, smoothed-out trend of any air fare, you'll see this logic in action.

  • The fare remains almost the same for months before a departure and then it starts growing in multiple, distinct steps.

  • These steps are caused by advance purchase discount requirements.

  • If you fail to purchase a flight at least, say, two weeks in advance,

  • the minimum fare remaining will get considerably higher for the same service class,

  • whether it's economy, business, or first class.

  • Usually, a flight has multiple step increases as fares rise towards the departure date.

  • This difference between fares helps divide

  • leisure travelers, who spend less, and business travelers, ready to pay more.

  • However, the prices also dynamically change regardless of discount requirements,

  • as airlines utilize another strategy that adds more peaks and valleys to this graph.

  • Imagine there are fifty economy class seats on the aircraft for a given flight.

  • Even though these seats belong to the same class, an airline doesn't want to sell all of them at the lowest cost, nor at the highest cost.

  • Carriers divide all those fifty seats into multiple fare groups, or buckets.

  • For instance, there will only be five seats at the lowest fare with minimum services and smallest bag allowances.

  • Once these five seats are sold out, the fare bucket is closed.

  • You can no longer purchase a seat at that bargain basement price.

  • But forty-five seats with more services and bag allowances are still available at a higher cost in other buckets.

  • They start filling up and then gradually close.

  • So, the prices go up no matter what, as travelers purchase seats from higher-fare buckets until the aircraft is fully packed, right?

  • Nope. Sometimes, the prices do go down.

  • If the only price direction was up as buckets filled, this would mean a lot of lost price-sensitive customers for airlines.

  • And there wouldn't be the need for sophisticated machine learning algorithms to predict fares in the first place.

  • Travelers would just have to purchase flights as early as possible.

  • Besides gradually increasing prices, airlines track demand.

  • How fast do those buckets get filled?

  • Imagine, you've sold five seats from the first bucket in a week,

  • but then only a single traveler purchased the seat from the second bucket next week.

  • If fewer people start buying out seats after a bucket or two are closed,

  • the lower-fare buckets may be opened again to invite more price-sensitive customers.

  • Some of the available seats from higher-priced buckets would then move to the re-opened lower bucket.

  • And this works in the other direction as well. If the aircraft starts filling up too fast,

  • the airline may close low-fare buckets to get more revenue or even to prevent some people from buying these seats.

  • Because there must be some room available for business travelers

  • who will purchase their flights at a much higher cost right before departure.

  • Advance purchase discounts and fare-bucket motion are the two main drivers that complement each other and cause most of the price changes at airlines.

  • And because demand dictates pricing logic, it may seem opaque to the average traveler,

  • since only the airline revenue manager knows what's going on with current demand and how fast those buckets fill up.

  • But there are even more factors that impact dynamically changing prices.

  • The fares within buckets can also change in reaction to various external conditions.

  • If the cost of fuel increases, this may cause the entire base fare to rise as well.

  • On top of that, airlines consider seasonal trends.

  • If there are more people who fly for summer vacation to some destinations, the set of fares will be adjusted to this trend.

  • This also happens if demand is likely experience an interval increase at a specific destination.

  • For example, Super Bowl or a rock festival will trigger revenue managers

  • to manually increase fares as higher demand is anticipated for these dates.

  • And, finally, if some low-cost airline or other competitor opens a new flight,

  • the competing flights will get cheaper, even at traditional airlines.

  • This is how dynamic pricing at airlines works today. But things may change in the near future.

  • The current pricing strategies that airlines use are based on broad rules.

  • The simple idea behind these rules

  • is to sell cheaper tickets to leisure, price-sensitive travelers and

  • sell more expensive tickets to business travelers that don't care that much about prices.

  • This straightforward logic has worked for years. With the arrival of new technologies, the old method started aging fast.

  • The past understanding of one traveler being price-sensitive, while the other is not is very limited.

  • There are many more nuances, and airlines realize that.

  • But the distribution model in which travelers purchase tickets from travel agencies puts blinders on carriers,

  • leaving them guessing exactly what their customer looks like.

  • They mostly judge by demand and time of purchase.

  • On the other hand, by directly interacting with customers, carriers can get a more granular and detailed view of the actual person looking for a flight:

  • What other flights are they looking for? How often do they check prices? Which links do they click on?

  • If airlines managed to tap into this data, they could use more advanced AI systems that define fully personalized prices.

  • Since 2012, airlines have been slowly embarking on a new data exchange standard:

  • new distribution capability or NDC.

  • It will allow airlines to receive more personal and detailed data about their customers

  • and eventually tweak existing revenue strategies.

  • This may render such tools as Fareboom's price predictor obsolete,

  • as fares will be adapted to each individual traveler.

  • The question is, are travelers themselves ready for such a change?

This is a flight booking website called Fareboom.com.

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B1 中級 美國腔

航空業動態定價:班機票價為何不斷變化? (Dynamic pricing in airline industry: why flight fares constantly change)

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    she22420060 發佈於 2021 年 01 月 14 日
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