Making Sense of Airline Pricing

I travelled to Toronto via London ten days ago, flying business class on British Airways. Fortunately, I wasn’t paying, and neither was my company. The client, unusually, was willing to pick up the bill.

tickets air

When searching on http://www.ba.com I noticed that a ticket from Prague cost less than half the cost of a ticket from London to Toronto and back. Four flights instead of two flights, but less than half the price. Now, I’m not naïve enough to think that it’s only distance that determines price, but I was still astonished at the difference. Revenue management is a fine art, and I suspect that all manner of factors come into play, demand being the main one, but whatever algorithm balances the profitability of expected sales from London against the profitability of expected sales from Prague must be a complicated one. How to decide whether to reduce the London price slightly to stimulate demand from London as opposed stimulating less profitable demand from Prague?

Certainly, if I had the time and needed the comfort, and was based in London, I’d be more than happy to add a comfortable day or two in Prague at both ends of a trip to Toronto, even if it meant flying through London both ways. I’d be saving a substantial amount of money.

So, what determines price? I can’t work it out. It’s a black box, the contents of which are known only to the revenue managers at British Airways. I had a look at business class flights to New York leaving on 18th and returning on 25th of November (converting prices into GBP, and showing % against London price):

PRG  LHR  JFK  LHR  PRG     2010      58%

LHR  JFK  LHR                         3472     100%

CDG  LHR  JFK  LHR  CDG     1854     53%

SOF  LHR  JFK  LHR   SOF     1794     52%

DME  LHR  JFK  LHR  DME      1769     51%

The distance between London and New York is 3459 miles,

And for Toronto they are these:

PRG  YYZ  JFK  YYZ  PRG      2130      40%

LHR  YYZ  LHR                         5277     100%

CDG  YYZ  JFK  YYZ  CDG     2383     45%

SOF  YYZ  JFK  YYZ   SOF     1978     37%

DME  YYZ  JFK  YYZ  DME      2595     49%

The distance between London and Toronto is 3547 miles,

Now these are snapshots on a particular day, so I’m not sure that these would be the cheapest prices you could ever pay for these routes, but one can at least conclude the following:

  • The cost of flying from London to Toronto is disproportionately more than the price of flying from London to New York. The distance is only slightly greater. Competition on the London to New York route, I suppose, is greater.
  • But if you’re flying to Toronto from continental Europe you’ll pay around 45% of the London-Toronto price, presumably because there’s greater competition on the indirect routes. But you’re still paying disproportionately more than the difference in distance would suggest.
  • If you’re flying to New York from continental Europe you’ll pay around 55% of the London-New York price.

You can’t, of course, buy an indirect route and board from London. But if you’ve got time, then spend a night in continental Europe before your transatlantic trip, but think twice before choosing Moscow.

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