¨You and I travel by road and rail. Economists travel by infrastructure¨.
Travel Prices Change Randomly
While prices for most things vary depending on where and when you buy them, travel product prices change seemingly both more frequently and randomly than any other consumer commodity.
A couple of times in my life, for example, the cost of my airline ticket changed significantly within just ten minutes.
Yet, unless you are in a country with extremely high inflation, the price of most other consumer purchase never change so rapidly.
Usually, the reasons why prices for most consumer goods vary between stores are also relatively transparent. We know, for example, that:
- Consumer prices are more expensive in high rent locations -like the center of a big city- than lower rent locations– like many suburbs.
- Areas where many stores are selling the same products (malls, for example), are usually cheaper than places where a business is a monopoly.
We also usually understand why we spend more on a product at one type of store than another. For example, if you want to buy milk and bread, you will pay more at the corner convenience store than at a large box store, like Walmart, to avoid:
- The time and trouble of traveling to and finding a parking spot at Walmart;
- the time to find the right aisle at Walmart to buy just milk and bread; and
- waiting in a long check-out line.
Why Does Travel Industry Pricing Seem So Bizarre?
However, this is not the case for travel products. Two people sitting next to each other on the same plane will probably find that they paid vastly different prices for their seats.
They receive no notable difference in service. They may even discover they bought their tickets on the same day. The same differences in pricing, while usually less dramatic, occur in rental cars, hotels, and other travel products.
Why does this pricing difference exist? The answers lie in two travel industry realities:
- The travel industry’s products are highly perishable, and
- The industry uses highly sophisticated, yield management algorithms to determine its pricing
The next two courses will delve into these topics in more detail.