Airlines Can’t Make Price Increase Stick

In routine move, 3 major airlines announced small fare increases, but retracted them when competitors did not follow. This is how prices get “coordinated” across the industry. The interesting piece from the WSJ article is the quote from Morgan Stanley analyst Jamie Baker: “Since 2005, there have been 17 broad failures to raise ticket prices (11 in 2005 and six in 2006) versus 21 increase successes (13 in 2005 and eight in 2006).” Anyone know the magnitude of the attempted and successful increases? Decreases?

That’s fine for looking at the past, but a new travel website (do we really need another one? maybe we do…) called Farecast offers forecasts about where ticket prices will move in the future. For a certain set of high-traffic cities, you can see fares, along with a prediction about which way the fares will move. For example, a NY-SF route shows a 75 day history of low fares (“low” low of $239, average low of $329), and a yellow arrow stating that fares will hold steady or rise in the next 7 days, along with a “76% Confidence” indication. The site advises me to buy now. Not all cities are covered, and I don’t know how accurate the predictions are (the company essentially mirrors what it thinks the airlines’ pricing algorithms do), but it’s a powerful idea. If it is successful here, expect it in other industries where pricing variation over time is irritating to buyers.

One Comment

  1. Jon

    Hi Reuben,

    Yes, Farecast is a very interesting site: accuracy of the forecasts is estimated to be between 70% & 75%.

    The interesting question to ask oneself is “what sort of site is Farecast?”. Is this a verion of a revenue management/yield management system, that the airlines have traditionally guarded from the public, that is finally visible to the public?


    One can’t help recalling that famous quote from Warren Buffet about airlines hardly returning a cent to their investors of X number of years (didn’t think I could recall it).


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