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Gaming airline fares

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Wednesday, Jun 7, 2006

Boing Boing linked to John Battelle’s blog, which reports on a new service, Farecast, that will attempt to thwart the mother of all price targeters, the airline industry. Perhaps nothing seems as arbitrary as the price of flights, because the airlines are always trying to keep its customers off-balance as to what the real cost of a trip is. Though it seems like services like Expedia cut through the nonsense and force competition on airlines to drive prices down, in fact such sites work for the airlines, not customers. As Battelle explains, “something funny happened on our way to internet mediated bliss: the big companies figured out how to game our demand. Dealers realized they can make more profit if they cooperate and withhold pricing information from the aggregators, and the aggregators got into bed with the supply side of the equation (if you think AutoByTel or Expedia is on your side, you’re kidding yourself). Nowhere is this more true that in how an airline prices its tickets.” So rather than dissemenate information, sites like Expedia make information more asymmetrical while giving the illusion of doing the opposite. Very nefarious. This is why shopping on Priceline is like working a Magic 8 Ball. “Price unclear. Ask again later.” The process is mystified until it’s positively occult, because customers have no leverage. (You can’t build your own airplane, at least not without a lot of trouble.) Airlines and travel brokers are thus free to play whatever games they want to assure that every customer pays how much they can afford rather than what the trip costs in material terms. Should some travelers pay more just because they can? Should there be a kind of progressive tax on their extra means, even if this money was redistributed to allow the less well-off to fly rather than to line the pockets of airline executives? One might make the argument that airlines would provide no service at all if they lost price flexibility—just like drug companies would stop researching if they couldn’t gouge the sick of America for maximum profit. The profits generated from bilking the those who can afford to be bilked subsudizes the entire industry. The problem is that sometimes those who are bilked aren’t those who can most afford it but those who can’t opt out at a given moment. Anyway, Farecast attempts to to track pricing changes based on historical data and put that information in a customer’s hands so that they may time their purchases and not get caught in that situation. While this system might work, it really sets one set of savvy customers against those other customers too lazy or ignorant to know about Farecast. The other customers generate the data that you then exploit, while the airlines continue their same business practices. What’s unclear to me is this: if everyone used it, would that bring about fairer pricing for all, or would it simply make the available data opaque again?

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