Are You a Day Trader and Don’t Know It? Does the promise of a few precious days of R&R have you waking up and checking airline ticket websites morning, noon, and night? And then checking them some more? Market research shows this is exactly what you do, and that most of us shop four to six websites at a time, over several days. All in the search for that increasingly elusive “super cheap” airfare deal. The reason? Trust. Wait, maybe I should say, lack of trust. You see, shoppers have noticed that price quotes don’t always match what is actually available, even on the same airline site, on the same day; so it’s hard to trust that the price you’ve been quoted is the best deal. Your instincts say, buy now but…you might be sorry later. Who’s looking out for you? Keep reading, and find out!

Who’s looking out for you?

Not the airlines. Selling airline tickets is a big and very complex business, and, like any business, it’s all about maximizing profit.

How do they do this? The airlines put you through a purchasing cycle I’ll call the “airline ticket stock market”.

A little background: every day, millions of airline seats are sold. Sound like a lot? Well, know that, as you read this, there are three-quarters of a million people about 30,000 feet above your head. Okay, now let’s take a look at that “airline ticket stock market” and I’ll explain how to optimize your “day trading” so you’ll always make the most informed buying decision.

The Exchange

The core of the “airline ticket stock market” is the exchange, or clearinghouse, called ATPCO (Airline Tariff Publishing Company). ATPCO was once a federal agency until the airline deregulation of 1978; it is now owned by a couple dozen airlines. And it is through this exchange that over 500 airlines worldwide file hundreds of thousands of airfare prices throughout the day.

Luckily this exchange is not “real time” like the stock market. What happens is, airfare prices (new and changed) are filed throughout the day, and sent out at 8-different predetermined times each day (3 of those times for domestic airfare and 5 for international airfare). The recipients of these airfare prices are the reservation systems where we shop which include online travel agencies and the airlines themselves; these businesses then upload the new prices, and the prices are ready to be publicly quoted as seen on the table below:

Your instincts that tell you to shop morning, noon and night are almost right; now you know “when” to shop to minimize your shopping time and maximize your chance at getting a better deal.

But please note: airline pricing systems are programmed to stay on par with the competition. The airlines are constantly monitoring competitors and changing their prices to make sure they are not one dollar above or below the competition. That is, unless they know they can charge a premium because of lack of competition in a market or, for travelers’ favorite days to fly (Monday, Friday, Sunday), favorite times to fly (morning and afternoon) and favorite routes to fly (non-stops).

The “Quoting” System

Something else to consider: most airplanes have about 6 to 10 passenger pricing “clusters”; these different clusters pay different prices for the exact same flight. As you might guess, these prices are broken down by leisure and business travelers, and those that shop early and at the last minute.

Again, the “exchange” or ATPCO is where these price points are set, but this isn’t the air traveler’s only shopping hurdle; you see, the airlines decide on a case-by-case basis what cluster price they’re willing to sell you, at any given time. In theory, every time you ask an airline for an airfare price, you may get a different answer.

This goes back to maximizing profit: the airlines have spent millions on quoting systems that decide in “real time” what price they can get for a seat, at any moment right up til takeoff. Pricing factors include travelers’ historical buying patterns, the pace of current sales, economic forecasts and popular holiday and event destinations.

The conundrum for airlines is that an empty seat (or one redeemed with frequent flier miles) provides no revenue, and allowing every passenger to always get a great airfare deal would put the airlines out of business in a heartbeat.

The airlines, of course, won’t let that happen, and, in the meantime, supply-and-demand is in the airlines’ favor (as anyone who’s flown on today’s packed planes can attest to); so what you have is, an environment ripe with airline ticket purchasing and travel frustration. But all hope is not lost!

Day Trader “Stock” Tips

After looking at airfare every day for over 5 years, here are some tips I would like to share that can save you time and money:

• Airlines almost always initiate system-wide price increases Thursday evening at 8:00pm; in 2007 this happened 23 times and four times so far this year. This gives other airlines the weekend to match the price; so a decision to continue the increase or rollback occurs usually Monday evening.
• Airlines almost always file airfare sales on Sunday evening or Monday during the day. The airlines know that the busiest airline ticket shopping days are Monday through Wednesday during daytime hours which allows them to maximize the marketing impact of their sales.
• Airlines tend to manage their domestic U.S. airfares in four to five month cycles; they tend to charge non-competitive, mid-tier rates for anything outside that window. Don’t shop too early; start shopping about 4 months out and you’ll have a better chance of establishing a baseline price and catching one of the few quarterly airfare sales. Procrastinators in 2008 will not be rewarded
• Airlines have been studying your air travel buying habits for years; they know when you want to go, where you want to go and what time you want to go; now that you know what they know, be flexible with your dates and destinations and you’ll always get a better deal
• Airlines are quick to promote new international routes with super cheap introductory pricing (like Northwest’s $500+ round-trip fare for June travel from Seattle to London). Keep an eye out for news of new routes.

Making good airline ticket buying decisions is all about using a combination of new technology and education; if airline ticket buying has been a source of frustration for you, then start taking advantage of both.