Originally Posted by
vagabond
There is a reason I am not in airline management. How does UAL justify offering fares SEA to FRA for $231 + taxes/fees = $506? Back in February, I purchased that same ticket from CAL for $666 and received credit for the difference when it lowered the fare to $393. It's a slow day at work today so I enjoy checking around and that's when I saw the UAL fare. Must be getting old because I will never understand airline fare structure.
It's simple. United decided to fly SEA-FRA. To do this, they forked out money to rent planes, hire and train crews, set up a reservation system and all those other things that will make this flight happen. So about 90% of United's costs to operate this flight are fixed. In one respect, they placed a bet that they could make money flying this route.
To cash in on this bet, United looked at it's costs and other competetors fares to decide how much to ask for a ticket. United then modeled how fast tickets sold on this segment, on this date using historical data from the past. Using computers, they track how the actual sales compare to the model. So in this bad economy, sales are laging. So the guys who track this, the yield management department, decide to drop the fare in hopes of increasing sales to get back to the historical sales model. If sales increase, then they will slowly increase prices back to the original price. If sales don't pick up, then they will drop them again. Remember, they are on the hook for the bet and will have to pay most of the cost of the flight, even if it's empty. Add to this, United withheld some of the seats (and some with the best seats on the plane) hoping that they could sell them to someone going from the Far East to FRA. If those seats didn't sell, then they could dump them closer to the flight. They also track how many first class seats are selling. If the front is selling slow, they can overbook more than the usual amount of coach seats, knowing that they can always pull passengers from the back (usually the frequent flyers) and seat them in first. Or better yet, they can sell those seat day of travel for a couple of hundred per seat. Anything to make revenue for that leg. These calculations are being made at least once if not twice a day.