Nowadays traveling by plane is more affordable than ever before. Has it always been like that? We are going to look in the past, briefly talk about the ticket price evolution over the last decades, the disruptive appearance of the low cost airlines. After that we are going to take a look at the systems which form the backbone of the commercial aviation, so we can answer the question on what is actually happening under the hood during the ticket purchasing process. Does it have anything to do with economics, supply and demand?
You guys like to travel every now and then, right? Would you like to know what happens under the hood when you are buying a ticket? Mysterious industry, people get offboard with a ticket. You have probably also read something in the news and have some questions. During the next 30 minutes let’s dive into this magnificent world of airlines and let’s hope some of your questions will be answered.
Ticket prices… What is the highest amount you have ever paid for a ticket?
In the past flying was an elite type of travel. Food, drinks, china plates, glasses made of glass. Everything was regulated, very little competition. No low cost competition at the time.
These Prices are +- equal to the business class prices nowadays. Also take a look at travel times. Fares were set by authorities
Deregulation in 1978 => everything changed. Fares were not set by authorities anymore. Over 100 airlines (most of them minor and 8 major) went bankrupt. Prices went down, passenger loads increased, so the niche that has not been tackled before was covered. In Europe the appearance of LCCs have changed everything. Legacy and LCCs converge to the same middle ground.
After surviving another hot Latvian summer, you would like to hit the beach somewhere. What are you going to do? That is right, go to the website, see the price, if you like it, book it. Then the booking is created and send to the airline systems. What are the prices we see on the website? People often complain that they are not real. How is it really?
Reality – prices are cached. Why? At first every request to the so-call reservation system costs money. Transaction model is used, therefore it is not even cents. By the end of the year – a lot of money. Interfaces are slow, so another reason – performance. Cache – currency exchange issues. Besides the price, it also saves the number of seats.
These systems were initially built by group of airlines. The concept has not changed since 1970. The initial version was built using Assembly, thereafter it was migrated to C/C++.
Website? Share < 50% To my surprise the ratio does not improve. GDS – corporates.
Grocery shop’s inventory – how many apples, bananas etc it can sell. Obviously the seat allocation is not random and somebody takes care of it. Otherwise how can airline maximize its revenue.
Whenever the word right is used, we are talking about some sort of optimization. RM is not a manual process, it utilizes a system that does all the optimization.
O&D – about giving away the control, a little bit like driverless cars
It really depends on the market. But if it is not a leisure destination, the trend is more or less like that
Oftentimes going via hub is cheaper. Why? Legacy airlines, hub, wave approach. Not every customer is revenue positive.
It is not specific to a particular airline, it is part of RM science. If you ever invite a guru, the first thing he is going to ask you is about the overbookings.
In some regions this number can go up to 20%, 747 (450 pax), 40 on WL and got on a plane => still seats left. Most of overbooking cases are properly handled and nobody talks about it.
Dr Dao. Auction process – everybody goes away happy.
The Magnificent World of the Airlines
The Magnificent World of the Airlines
About the Author
• 8 years in Airline Industry
• Business Analyst
• Project Manager
• Product Owner
• VBA + SQL Developer
It is a system that contains all information about the passengers travelling
with a given airline.
Global Distribution System
An airline distributing via Global Distribution System allows every travel
agent in the world to sell its tickets.
Can Travel Agents
Sell Cheaper than
an Airline Website?
Booking Class is a bucket that contains different fares.
Inventory indicates how many seats in each Booking Class are available for sale.
Different categories of customers are coming in at different points in time
Each Revenue Manager
keeps in mind:
• Don’t sell too early!
• Don’t sell too late!
• Departed free seat
cannot be re-utilized!
days before departure60-30
Importance of Connecting Passengers
Total number of seats: 172
What is Overbooking?
Overbooking is the practice of selling more tickets than there are seats.
Why does Overbooking Exist?
It is not banned by most of the governments (except Russia, for example)
In Europe ~4-5% of passengers do not show up at the gate
Revenue of passengers coming last minute > overbooking compensation
Future of Overbookings
Discussions about the economics of overbookings restart again after the United fiasco
This very unfortunate incident costed them ~1 billion USD and counting