Making Sense of Airline Pricing

I travelled to Toronto via London ten days ago, flying business class on British Airways. Fortunately, I wasn’t paying, and neither was my company. The client, unusually, was willing to pick up the bill.

tickets air

When searching on http://www.ba.com I noticed that a ticket from Prague cost less than half the cost of a ticket from London to Toronto and back. Four flights instead of two flights, but less than half the price. Now, I’m not naïve enough to think that it’s only distance that determines price, but I was still astonished at the difference. Revenue management is a fine art, and I suspect that all manner of factors come into play, demand being the main one, but whatever algorithm balances the profitability of expected sales from London against the profitability of expected sales from Prague must be a complicated one. How to decide whether to reduce the London price slightly to stimulate demand from London as opposed stimulating less profitable demand from Prague?

Certainly, if I had the time and needed the comfort, and was based in London, I’d be more than happy to add a comfortable day or two in Prague at both ends of a trip to Toronto, even if it meant flying through London both ways. I’d be saving a substantial amount of money.

So, what determines price? I can’t work it out. It’s a black box, the contents of which are known only to the revenue managers at British Airways. I had a look at business class flights to New York leaving on 18th and returning on 25th of November (converting prices into GBP, and showing % against London price):

PRG  LHR  JFK  LHR  PRG     2010      58%

LHR  JFK  LHR                         3472     100%

CDG  LHR  JFK  LHR  CDG     1854     53%

SOF  LHR  JFK  LHR   SOF     1794     52%

DME  LHR  JFK  LHR  DME      1769     51%

The distance between London and New York is 3459 miles,

And for Toronto they are these:

PRG  YYZ  JFK  YYZ  PRG      2130      40%

LHR  YYZ  LHR                         5277     100%

CDG  YYZ  JFK  YYZ  CDG     2383     45%

SOF  YYZ  JFK  YYZ   SOF     1978     37%

DME  YYZ  JFK  YYZ  DME      2595     49%

The distance between London and Toronto is 3547 miles,

Now these are snapshots on a particular day, so I’m not sure that these would be the cheapest prices you could ever pay for these routes, but one can at least conclude the following:

  • The cost of flying from London to Toronto is disproportionately more than the price of flying from London to New York. The distance is only slightly greater. Competition on the London to New York route, I suppose, is greater.
  • But if you’re flying to Toronto from continental Europe you’ll pay around 45% of the London-Toronto price, presumably because there’s greater competition on the indirect routes. But you’re still paying disproportionately more than the difference in distance would suggest.
  • If you’re flying to New York from continental Europe you’ll pay around 55% of the London-New York price.

You can’t, of course, buy an indirect route and board from London. But if you’ve got time, then spend a night in continental Europe before your transatlantic trip, but think twice before choosing Moscow.

No Room in Vienna

It’s hard to find a hotel room in Vienna these days, at least at an affordable price. When I paged through Trivago‘s meagre and unaffordable offerings two weeks ago (a rip-off rate of 300 EUR for an airport Novotel, for example), I wondered what on earth could be going on in the city, especially on a Friday night. Car show, business conference, political summit, Star Trek convention, Vienna Marathon, Madonna, Kylie or Shirley Bassey in town?

All my partner and I needed was somewhere simple for eight hours’ sleep between an evening train journey from Prague and a morning flight to Dubrovnik. Not worth paying 700 EUR for the splendid Hotel Sacher, I thought, however stylish it might be. Who wants to pay a lawyer’s hourly fees for just eight hours of bed and breakfast.

Foolish of me not to realise it was part and parcel of the refugee crisis, as the receptionist at our hotel (more like a hostel, really) explained. I’m still dubious, because you don’t really think of refugees booking hotel rooms, but perhaps the lower-cost end of the market is saturated and there are only four-star and five-star rooms left for regular travellers. Being a refugee from a dangerous country doesn’t necessarily mean you can’t afford to sleep in a hotel. The huddled masses at Vienna’s main railway station, however, suggest that many, perhaps even most, still sleep rough.

There weren’t any rooms left anyway at our hotel, even if they did have the wherewithal. In the ten minutes we spent at Reception checking in, at least two groups of people came looking for rooms. I have no idea if they were refugees. In any case there was no room at our inn, not even for ready money.

pylone

Asking for high prices seems extortionate in the circumstances. In this situation ‘revenue management’ (the clever way in which price is continuously adjusted to reflect demand) might almost be described as ‘racketeering’, but it’s the way the West works. Supply and demand, and market prices. How could it be better arranged?

At the railway station the next morning, bound for the airport, we came across crowds of migrants queuing for cigarettes, washing facilities and food. In the same concourse there’s one of those pretty Pylones shops (there’s one I visit regularly in Portobello Road just before friends’ birthdays), an Aladdin’s cave of delightful, ingenious, imaginative and colourful things that no one actually needs. No queue of migrants there, of course, but a few shoppers nevertheless browsing for things that might tickle a decadent fancy, their basic needs no doubt already met (though our breakfast at the hostel/hotel was conspicuously poor). Not that these are luxury items. It’s not Prada. But they are in no way necessary.

A starker contrast is hard to imagine. I suppose we should hope that somewhere, someday, these refugees will be fully paid up and prosperous members of our Western European club, able to buy such discretionary items, driven by desire rather than necessity, as we are most of the time.