BERKELEY, Calif. — Most airline travelers have heard a trick or two for securing cheaper flights. From buying on Tuesday nights, to browsing incognito or using VPNs to mask your location, there are no shortage of tips. However, recent research from the Berkeley Haas School of Business debunks many of these cheap flight myths. Researchers reveal that much of what we assume about airline pricing is off the mark.
Scientists embarked on a deep dive into how a significant U.S. airline sets its prices. Their findings were unexpected, often contrary to common economic principles.
“There are so many hacks out there for finding cheaper airline tickets,” says study author Olivia Natan, an assistant professor of marketing at the Haas School of Business, in a media release. “But our data shows many of these beliefs are wrong.”
The truth behind your airfare
Natan teamed up with four colleagues—Ali Hortaçsu and Timothy Schwieg from the University of Chicago, Kevin Williams from Yale, and Hayden Parsley from the University of Texas at Austin—to dive deep into the perplexing world of airline pricing. What they discovered about the mechanics of setting airfares might leave even seasoned travelers scratching their heads.
Their study came away with three key takeaways about purchasing airline tickets and cheap flight hacks:
Substituting Convenience for Price: Typically, when searching for flights, travelers weigh convenience against cost. If one flight is too pricey, they might opt for a slightly cheaper but less convenient one.
Contrary to logic, airlines often overlook this pattern. They think about the prices of seats on each individual flight rather than total seats sold in a day, “even though changing the price on one flight will affect the way people think about all their options,” says Natan.
Fixed Pricing Strategy: Airlines follow an unexpected pricing method that doesn’t align with usual market principles. They don’t always factor in competitor pricing. This is because they use a specific heuristic, Expected Marginal Seat Revenue-b (EMSRb), that results in a set number of prices for each flight.
“Airline tickets are sold through global distribution systems that make sure a travel agent in Wichita sees the same price as you do on your computer at home,” notes Natan. Therefore, instead of flexible pricing, airlines have considerable gaps between potential prices.
Lack of Inter-Departmental Coordination: One of the most baffling findings was that airlines don’t always optimize ticket prices. Despite the potential of maximizing revenue by increasing ticket prices, they frequently underprice.
Natan recalls conversations with airline managers who felt “the pricing team doesn’t know what it’s doing.” Although a revenue management team does adjust prices before tickets are sold, their forecasts are often inflated, reducing available cheaper tickets by around 60 percent. Natan believes the reason might be miscommunication between departments or, potentially, efforts to retain customer loyalty or sidestep regulatory oversight.
Is there any way to find cheap flights?
While the current system might seem baffling to many, there are signs that change is on the horizon. Airlines are considering the adoption of more dynamic pricing platforms in the future, which could potentially benefit non-business travelers.
Natan does offer one piece of solid advice for travelers looking for cheap flights. It may seem obvious, but hey, it’s a good reminder either way.
“What I can say is that prices do go up significantly 21, 14, and 7 days before a flight,” says Natan. “Just buy your ticket before then.”
While the pursuit of hidden hacks for discounted fares might be in vain, it’s clear that planning and booking early remains a wise strategy.
The study is published in the The Quarterly Journal of Economics.
