Airfares are costing too much – why?

14
5 min read

JOHANNESBURG – Why can two corporate colleagues seated next to each other on the same business trip pay vastly different amounts for their flight tickets? It’s a question every single traveller has asked themselves at some point. Unfortunately, the answer is more complex than you might think. But, the New Distribution Capability (NDC) promises to bring clarity and efficiency.

“Understanding airfares begins with airline economics,” explains Bonnie Smith, GM FCM. “Airlines are faced with a mix of fixed costs (like aircraft financing) and variable costs (like fuel). Combine this with the industry’s narrow profit margins, and you’ll soon understand why pricing is a complex web.”

Of course, pricing is immediately linked to supply and demand. Airlines use advanced tools to forecast demand. Demand peaks during the work week for business travellers, with certain industries having their own ‘high seasons’—think tech events or important global conferences in major cities.

To make a profit, airlines need to sell the right seat at the right price and the right time. “It’s about selling a seat on a flight for the highest price someone is willing to pay, considering that the product (the seat) is perishable; once the plane takes off, any unsold seat represents lost revenue,” explains Smith.

Predicting human behaviour at this level, especially in an environment as volatile as air travel, requires a blend of data analytics and intuition. For example, for business travellers, time is money. Services like priority boarding or extra legroom seats might be more valuable than for leisure travellers. Airlines have recognised this, cleverly offering a menu of ancillaries to enhance the travel experience and boost their profit.

The right timing is also imperative. Tickets booked months in advance might be priced lower to incentivise early purchases. Prices can rise as the departure date approaches, capitalising on last-minute travellers who might be less price-sensitive. However, very close to the departure time, if there are many unsold seats, prices might drop again to fill the plane quickly.

NDC is set to bring a lot more clarity to airline pricing and offerings, making it easier to understand. This modern distribution channel wants to eliminate many of the unclear practices of the past and offer a more direct, transparent, and tailored approach to airline booking. For Travel Management Companies and business travellers, this can mean better value, clearer choices, and a more enjoyable travel experience.

Smith sums up how NDC will help bring clarity to airfares and a more streamlined booking experience:

Clear, itemised pricing

Traditional airline distribution systems often bundled services, making it hard to discern each service’s or amenity’s individual cost. With NDC, travellers get a transparent fare breakdown. For instance, instead of seeing a flat fee, a business traveller could see a breakdown like: base fare (R4 000), Seat selection (R200), Wi-Fi (R300), Priority boarding (R300), etc.

Ancillary services (like baggage fees, meals, or lounge access) are clearly listed and priced. This level of transparency helps businesses understand and manage travel expenses better.

New levels of personalisation

NDC doesn’t just provide ticket information; it can access a traveller’s preferences and past behaviour to curate personalised offers. Examples include:

  • Preferred Seating: If a traveller always opts for aisle seats near the front for quick boarding and deplaning, NDC can prioritise showing these options.
  • Layover Options: NDC can tailor search results accordingly for those who prefer shorter layovers or even longer ones to squeeze in a quick meeting.
  • Bundle Offers: Airlines can offer bundled packages based on past purchases. For instance, if a traveller often books Wi-Fi and a meal, they might receive a discounted bundle offer for both.
  • Loyalty Integration: Frequent flyers can get offers tailored to their loyalty status, like discounted upgrades or bonus point opportunities.

How TMCs offer better value through NDC:

“Our focus as a TMC is on delivering content which integrates with customers’ end-to-end experience with minimum disruption,” explains Smith. That is why FCM has heavily invested in NDC technology, as it allows the team to enhance their value proposition to corporate clients by offering direct access to airline inventory and allowing for more seamless package creation. For instance, if a business traveller prefers a specific airline and likes to stay at a particular hotel chain, FCM can bundle these efficiently through NDC. TMCs can also potentially negotiate better rates or specific bundles with airlines using NDC, passing on savings or added value to corporate clients.

“As the world of air travel becomes increasingly complex, the demand for transparency and clarity in pricing grows stronger,” says Smith, adding that NDC is the industry’s answer to this call.

However, Smith also cautions that NDC is still developing, and some nuances must be considered and mitigated where possible. “While the industry is focused on NDC as the future of air content distribution, it is still maturing. NDC is constantly changing, and it’s important to consider if it’s the right fit for your corporate travel programme,” she says, adding that not all airlines have finished building their NDC capability. One obstacle, Smith points out, is that it may not be possible to easily cancel an NDC booking. “As NDC continues to evolve, each travel manager needs to make an informed decision with consideration of the airlines, content and capabilities which are most important to their programme. A TMC like FCM can help corporates navigate this decision and ensure they get the most out of NDC content when it’s suitable for their business,” she concludes.