We’ve all experienced that sinking feeling when we need to book a last-minute flight and discover that the prices have shot up. While it may seem like airlines are taking advantage of your urgency, there are several reasons why booking last-minute flight fares tend to be so expensive.
Let us break down the reasons below for a better understanding of how Dynamic Pricing affects Last minute bookings.
The prices heavily depend on the region of the routes, the current seasonality i.e.peak or off-peak season, the current events, weather conditions of the destination, demographics of the ultimate consumers and how they respond to the price elasticity.
Business Travellers :
Business travellers often have little flexibility when it comes to their travel schedules. They frequently need to book flights at the last minute. Airlines recognize this and, as a result, charge premium prices for last-minute bookings made by business travellers who also don’t mind paying high fares for the flight.
Banking on Travel Necessities :
Airlines are not oblivious to the fact that people often need to travel urgently for personal or medical reasons. In these situations, travellers are willing to pay whatever it takes to get to their destinations quickly. Airlines capitalise on this need, driving up the cost of last-minute flights.
Existing Pricing Algorithms:
Airlines employ complex pricing algorithms that factor in various elements, including booking time, journey time, type of route, current events of the destination, and historical demand data. These airline pricing algorithms are designed to maximise revenue for the airlines through dynamic pricing. When you book a last-minute flight, the algorithm often detects the increased demand and adjusts the prices accordingly, making them higher. However, the current algorithmic pricing also focuses too much on competition, and less on the other factors. Airlines believe in copycat pricing methods too, so if one of the competitors changes their prices, others follow.
People who game the system:
Airlines understand that some passengers who booked tickets earlier may monitor fare changes and cancel their reservations to rebook at a lower price if the fare drops closer to the departure date. To mitigate this, they tend to keep last-minute fares high, discouraging passengers from canceling and rebooking.
Encouraging Advance Bookings:
To incentivize travellers to book tickets in advance, airlines offer discounted fares for those who book tickets well ahead of their departure dates. This encourages passengers to make reservations early, ensuring that airlines have a better idea of the demand for their flights and can adjust prices accordingly.
Airlines often segment their seats into different categories,each with different pricing intentions. Seats booked closer to the departure date usually fall into higher-priced categories. This seat segmentation strategy allows airlines to cater to both budget-conscious travellers and those willing to pay a premium for last-minute convenience.
At the end of the day, the airline industry’s primary goal is not just to fill all the seats on a flight but to fill them at the highest possible price. They play with the passenger’s mind and influence it in such a way that even though the cost is shown to be low, the ancillary and hidden charger make sure that the customer ends up paying a high price.
This revenue-maximising approach ensures that airlines can cover their costs and stay profitable. As a result, last-minute fares are intentionally set to gain as much revenue as possible from travellers who have no other option but to book at the eleventh hour. While the high cost of last-minute airline flights can be frustrating, it’s important to understand the various factors that contribute to these prices. The dynamic model of aggregate demand-supply dynamics, the needs of business travellers, existing pricing algorithms, and the airlines’ aim to maximise revenue all play a role in driving up the cost of last-minute bookings.
To keep up with this dynamic environment, it is imperative to learn how AI pricing engines can help you do that.