Airline pricing appears arbitrary. It is the output of a well-developed optimisation discipline, and understanding the objective clarifies most of the apparent randomness.
The problem being solved
A seat is perishable. Once the aircraft departs, an unsold seat has zero value forever.
Costs are overwhelmingly fixed — the aircraft, crew and fuel are largely the same whether it is full or half empty.
Which means the airline wants to fill every seat at the highest price each passenger will pay, and that means charging different passengers different amounts for the same seat.
Fare buckets
The mechanism. Seats on a flight are allocated to fare classes, each with a price and conditions.
The system continuously adjusts how many seats are available in each bucket, based on booking pace against forecast.
If bookings run ahead of forecast, cheap buckets close, and the displayed price rises.
If they run behind, cheap buckets reopen.
Which is why prices move in steps rather than smoothly, and why they can fall as well as rise.
Why business travellers subsidise leisure ones
The whole structure rests on separating the two groups.
Business travel is less price-sensitive, booked later, and requires flexibility.
Leisure travel is price-sensitive, booked earlier, and tolerates restrictions.
The conditions attached to cheap fares — advance purchase, no changes, Saturday night stays historically — exist to prevent business travellers from buying them.
They are fences rather than costs, and understanding that explains why they are structured as they are.
The folklore
Several widely believed rules do not hold up.
Booking on a particular day of the week has been examined in large datasets and the effect is negligible.
Clearing cookies to avoid price increases based on your searches has been tested repeatedly and evidence for the practice is weak, with price changes generally explained by inventory movement.
A single optimal booking window does not exist, since the right time depends on route, season and demand, though average curves show a broad middle period being cheapest.
What does hold up
Flexibility on dates matters more than anything else, since adjacent days frequently differ substantially.
Flying at unpopular times is genuinely cheaper because demand is lower.
Nearby airports can differ considerably, particularly where a low-cost carrier operates from one.
And prices generally rise close to departure, since remaining demand is inelastic, with occasional exceptions when a flight is underbooked.
Ancillary revenue
The larger shift in the industry.
Baggage, seat selection, priority boarding, food and change fees have become a substantial share of revenue.
Which allows the headline fare to fall while total cost does not, and it makes comparison across carriers genuinely difficult.
Regulators in several jurisdictions have required more prominent disclosure of total cost, with mixed implementation.
The practical response is to price the whole journey including whatever you actually need, which frequently reverses the apparent ranking.
Fuel and why fares do not track it
Airlines hedge fuel purchases in advance, which means their cost does not move with the spot price.
Which is why fares do not fall promptly when oil does, and why they rise with a lag when it climbs.
Hedging strategies vary between carriers and the results have differed substantially, occasionally by enough to affect competitive position.
The practical version
Be flexible, check adjacent dates and airports, price the total including bags, and book in the broad middle of the window rather than very early or very late.
That covers essentially everything the structure permits, and no amount of technique beats being able to move your dates.
Overbooking
A deliberate practice with a statistical basis.
A predictable proportion of booked passengers do not travel, and airlines sell more seats than exist to compensate.
Which works almost all the time and occasionally fails, producing denied boarding.
Compensation regimes in several jurisdictions specify what is owed, and the amounts are substantial enough that airlines generally seek volunteers first.
Knowing your entitlement is worth a few minutes, since it is frequently more than what is offered at the desk.
Delay and cancellation rights
Where regulation differs enormously between regions.
Some jurisdictions provide fixed compensation based on distance and delay length, independent of ticket price.
Others provide considerably less.
Extraordinary circumstances generally exempt the airline, and what counts has been litigated extensively, with technical faults generally not qualifying and weather generally qualifying.
Claims can be made directly without paying a claims company a share, which is worth knowing since the process is usually straightforward.
Codeshares
A ticket sold by one airline and flown by another, which affects baggage rules, seat selection and which carrier's terms apply.
The operating carrier is what matters for the experience, and it is stated in the booking if you look.
Loyalty programmes
Now substantial businesses in their own right, with several airlines valued partly on them.
Miles are sold to banks for credit card programmes, which generates revenue independent of flying.
Which explains why award availability and redemption values have deteriorated — the programme's revenue does not depend on redemptions being attractive.