New Airplane Ticketing Models

Photo courtesy of caribb

One of my former professors, Oren Etzioni, who was briefly my advisor, just launched Farecast. This website uses machine learning to predict whether or not an airplane ticket price is going to go up or go down in the future. If it is probably going to go up, then the site recommends buying now. If it is probably going to go down, then the site recommends waiting to buy.

This is such a compelling business model because of the fundamental problem of airline ticket pricing. No one understands how to optimize the price they pay for a ticket. I'm not even 100% sure that anyone actually understands how the ticket pricing scheme works, including the airlines. It involves evaluation of passenger demand and evaluation of competitive pricing strategies.

Some airlines, like RyanAir, are experimenting with different pricing schemes. Flat rates are obviously hugely popular with passengers because it allows a passenger to plan and comparison shop and not be put under pressure that a ticket price is going to change. On the other hand airlines want to differentiate the prices that they offer to different customers. They want to charge people who are less sensitive to ticket price more, but not risk flying an empty airplane.

The opaque ticket pricing scheme coupled with security is putting pressure on the airlines to change the way they do business. I have two ideas which I will describe over the next few days.

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I wonder if Farecast will, by changing the timing of purchases and hence the demand, create a new feedback loop in the pricing scheme. Is it smart enough to predict its own effect on ticket prices?

Hmm... I wonder when Stockcast will be available.


Posted by: haasebert at September 27, 2006 8:33 PM

The feedback loop should only affect Farecast if the airlines heavily respond to demand as observed through ticket sales. If the primary reason why airline ticket prices change is some other unrelated factor, weather, competition, etc. I think they might enjoy a run of success.

Posted by: DJP3 at September 28, 2006 7:40 AM

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