Airline pricing

Anyone interested in economics likely finds airline companies interesting: one of the few things I remember from my introductory economics class was the story of how some airline company realized they could make more money by not filling planes; it is also interesting how budget airlines like Ryanair can offer astoundingly low prices by cutting frills. Airline pricing is also interesting because finding the lowest fare for a given route is NP hard; companies like ITA software have sprung up to solve such problems.

Company business models aside, I find airline pricing to be incredibly interesting because it is one of the few things relevant to my life where supply and demand have such an immediate effect on price. According to Wikipedia, airline reservation systems sometimes have perfect discrimination when it comes to filling each seat of a plane at the highest price a customer would pay without driving the customer away. This is in line with the advice I've gotten over the years about purchasing plane tickets: tickets to leave Friday and return Saturday are expensive because there is high demand from corporate travellers, who don't care what they pay; ticket prices tend to drop after midnight (I hypothesize because reserved seats open up again); waiting for fare wars is a good way to plan semi-spontaneous trips. Plane tickets are cool because you can really improve your quality of life by having a good strategy and having a good strategy is fairly low-cost.

Recently I've been spending a bit of time on Bing travel (formerly Farecast), which compares prices over different dates and offers a prediction of whether to buy or wait with an estimate of the price variability. (A cool thing is that it will also let you set fare trackers that e-mail you the daily price--at some fixed time of day--for some trip.) It shows you graphs of the historical lows and the daily low price, both of which are interesting because they can vary a surprising amount (over $200 for tickets that can be in the low $100's) over the course of a few days (sometimes with seemingly random highs/lows). You can also see longer-term trends: an obvious trend is that ticket prices increase the closer you get to the flight date. I've also discovered fairly high variability (difference sometimes in the hundreds) of tickets over the course of a day; ticket prices do seem to increase quite a bit during the course of a day. (The price difference of flying to different locations is also interesting, since it depends not only on distance but also on demand for flying to that city, whether it is a hub, etc. etc. etc.)

I recommend playing around with Bing travel/Farecast if you are interested in this kind of thing. It is also a great resource for planning trips. ;)