Pandemic Upends Airfares for This Year and Next Year
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What is the main topic discussed in this episode?
Here's your Money Briefing for Thursday, August 6th. I'm J.R. Whelan for The Wall Street Journal. It's pretty cheap to fly these days as many Americans opt to stay home and put off travel. But this year, low demand is making it hard for airlines to set their fares for next year.
And so they not only are sort of pricing blind right now, but you can imagine next year, there's still no relevant historical data. And for some time to come,
So how cheap will tickets likely be next year? Middle C columnist Scott McCartney will be here to run some numbers after the break. Airlines are facing a money issue, and not just because fewer people are booking flights.
Why are airfares unusually cheap during the pandemic?
The pandemic has thrown off the airline system for setting prices for future flights, like well into next year. That's Middle Sea columnist Scott McCartney's beat, and he's here to explain. So, Scott, you know, it makes sense that airfares are pretty low now. Everyone's staying home. But what doesn't add up is that next year's fares will be low, too. How do the airlines determine prices?
Well, the traditional way has flown out the window. Traditionally, they determine prices based on historical patterns. So they know on the third Tuesday of October that on the 2 p.m. flight to Cleveland or Chicago or wherever, there's going to be a certain amount of
How has the pandemic disrupted airlines' traditional pricing methods?
demand. And they parse it into business demand, leisure demand, and figure out how many seats to hold back for higher prices that people will show up for in a few days before departure. Now, all that historical information is completely irrelevant. And so they not only are sort of pricing blind right now, but you can imagine next year that there's Still no relevant historical data. And for some time to come, since the year of the pandemic is, they hope, not going to be indicative of what kind of demand there will be in the future.
Can you give us an example of some of those low fares?
There's very little variation in fares on a lot of routes. So I looked at, for example, New York to L.A., one of the busiest routes in the country. And basically there's a $300 price.
What does 'pricing blind' mean for future fare setting?
That's kind of the standard minimum these days for airlines. $300 price for close-in trips for August, September, even into October. Periods when airlines know there will be very little demand. So if you want to go, it's going to be $295. But what was sort of fascinating was if you look at the same trip in May and in June, same days, you know, leaving on a Friday is typically what I looked at, same $295 fare. So there was really sort of no confidence that they had any idea of higher demand to come in the future. And, you know, we'll wait and see. I mean, there are not a whole lot of people booking trips right now for May and June. But I think what you're going to see is not necessarily fire sale prices.
Airlines know that they're not going to stimulate a lot of demand right now with cheap prices.
Which examples illustrate the current lack of fare variation on busy routes?
So they put a basic, you know, bottom kind of a fair price, if you will, out there, $300 round trip coast to coast and just take whoever they can get at that price.
Now, I'm sure there are lots of computers involved here, and the airline's computers probably don't know what a pandemic is. You know, they just see the raw traffic numbers. But can't programmers step in so airlines don't lose money on flights next year?
Well, they certainly can, but they're going on gut instincts. And, you know, airlines, it's a seasonal business. What happened last week may not predict what happens next week. And so, you know, it's different from, A lot of e-commerce, for example, which looks for things that are hot now. And, you know, as we saw, if there's sudden demand for face masks, the price of face masks are going to go up. Airlines don't necessarily operate that way. And so it does become difficult. There are analysts who fine-tune these things. But if you think about all the different flights, all the different markets, each flight, there's the complexity of Do you want to fill that seat with a person going from a city to a hub or do you want to fill it with a connecting passenger?
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:05–0:49
2
Why are airfares unusually cheap during the pandemic?
0:49–1:26
3
How has the pandemic disrupted airlines' traditional pricing methods?
1:26–2:17
4
What does 'pricing blind' mean for future fare setting?
2:17–3:20
5
Which examples illustrate the current lack of fare variation on busy routes?
3:20–5:10
6
Can airlines reprogram systems or rely on analysts to prevent next-year losses?
5:10–6:33
7
How will reduced business travel affect leisure fares and airline profitability?
6:33–7:37
Speakers
2 identifiedMore from WSJ Your Money Briefing
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