Filling the planes: Rob Nicholls on why the same airfare can have different prices

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Few things in life are more annoying than spending a lot of money on one item to find that somebody else has paid a lot less than you but with airlines It seems to happen all the time on exactly the same flight all the passengers can be paying a completely different price. Well, UNSW business schools, Rob Nicholls, a senior lecturer in Business Law, has looked at pricing on websites for airline prices and he’s found that quite often passengers are paying a completely different price even if they’re booking at exactly the same time I’m pleased to say Rob Nichols is with me now. It’s great you could join us Rob. Good to be here. Firstly, can you tell me why is this happening? Basically, what the airline travel agents are trying to do, is find out what price you’re prepared to pay. And that might be different from the price that I’m prepared to pay. So if you open a page to pay $1,525 for a flight and I’m only prepared to pay $1,500 I might get it for $1,500 and you pay that bit extra. You still got the price you wanted, it’s just not as good as the deal that I struck. Okay, let’s break this down, Rob. Firstly, let’s talk about dynamic airline pricing. This is where Airlines will charge you, different prices I understand it according to when you book. Those people who book really early, they’re gonna be paying a lot less. That’s right, and it’s basically a model which says we want our aircraft to be as full as possible. So the people who book early buy the cheapest seats towards the back of the plane. The people who absolutely need to go on the day, but only decide the day before, pay full freight. And somewhere in between you’ll find different prices being paid, both for different classes of travel, for different types of seat and for different types of ticket. If you book early and you’ve got plenty of time, then you get a lower price. If you book late, you’ll pay a higher price. And what all the airlines are trying to do is fill up their planes. And that seems to be classic supply and demand that obviously demand goes up then the price goes up. But you also have the other thing of it being exactly the same seat, on the same flight, at exactly the same time and people are looking at the same website, but maybe side by side with each other, they’re seeing a different price on the screen. But that’s quite odd. It is, but it’s usually using similar signals to say, one person might be prepared to pay a little bit more than another. So, if I’m using a browser, which might imply I’ve got an iPhone. Well, that might say I’m prepared to pay a bit more than somebody who’s got an Android phone. Similarly, if I make some searches that say I want to go on the 20th, between 10 and 12 that says I probably have got a narrow window, and so I might be able to, if I’m the online travel agents, say, if you’re prepared to go the day before, It’s very cheap, or go in the afternoon. It’s very cheap. But the time you’ve chosen looks more expensive. Because that’s the time you’ve chosen, and you’re probably going to be willing to pay a bit more for that time. How do they know if I’m on the computer and I’ve just just gone back to the website? How does the travel agency or the airline know? Because each time you make this inquiry on their website, you store a little bit of data called a cookie, on your computer browser or your phone browser and the website can look at those cookies to try and get a history of you. It doesn’t matter if you then say oh, well, I’ll go back and look later. If you haven’t cleared your browsing history, those cookies are still there. The website can look back and say looking for exactly the same flight but getting a bit more desperate now because they’re looking again and therefore the price might just be a little bit more. And I’ve noticed something similar as well. If you log into the airline’s frequent flyer system and then look for a flight, the airline will suddenly charge you a little bit more. According to your status, if it’s gold it goes up, with platinum even more. Yes, because you’re showing loyalty. So the chance of you, if you’ve got a platinum with one airline, deciding, oh well, I’ll go and book on another airline. It’s much much lower. So you have got a propensity to pay, a willingness to pay, so you’re gonna pay. Is this legal? It is. So price discrimination is what it’s called. It’s been around for ages and we actually do it ourselves sometimes. So for example, if you were having a garage sale, you’ve priced up the expensive items you’ve got the junk at the front and you are basically happy for someone to take away the junk. But then somebody comes along says, oh, it’s one of those I had one of those when I was a kid I’ve always wanted one of those and suddenly your junk is great value as it’s only $10 and the person who buys it is pleased, you’re pleased, but it’s very different price to the value you originally ascribed. It’s what they’re prepared to pay. And it’s been like that forever. So there’s no Illegality and price discrimination of itself. It’s risky though. If I’m a business that gets a reputation for charging some people more than others, people will not go to that website. I also have a risk if I price discriminate that I might engage in real discrimination. That’s illegal. So if I use information such as surnames, I might say well I found that people with an Italian surname have a higher propensity to pay, well, that might end up being a form of racial discrimination. And that would be illegal. So the information needs to be sourced on what people are prepared to pay that is de-identified enough to avoid actual discrimination, but the reputational risk is high. If, suddenly, you get a really bad deal and you put on your social media pages I got a really bad deal from TravelCo then their reputation might be harmed. So there is a risk in it, a reputational risk, from a business perspective but not a legal risk. It may be illegal to discriminate in case of somebody’s surname but it’s not illegal to discriminate if somebody’s got status with an airline. Surely there’s a contradiction there. No, because discrimination and human rights are well defined and having platinum status I’m afraid Julian does not put you into a particular group against which you can’t be discriminated. So it’s, as long as it’s not done based on gender, based on race, based on disability then it’s still legal. As I say there’s a reputational risk, but it’s legal. So can savvy customers get around this? Absolutely. How? Don’t keep a history. So, there are two ways of doing this. One is to use the private mode or incognito mode when you’re browsing, that will still collect cookies for the single session, but when you stop that browser session and go in again, all of the cookies are gone. The second thing that you can do is just clear your browsing history so even if you don’t use the private mode you can click to clear your browsing history and that will avoid you being known to the online travel agent. The other way, which is sometimes helpful, is to use an anonymous search engine. So DuckDuckGo, as an alternative to Google, doesn’t leave the sort of breadcrumbs that online travel agencies use in order to do the price discrimination. But it does feel like price discrimination is very common in the travel industry. It is. Yes. Absolutely. Well, Rob, it’s been great talking to you. I’ve learnt a lot. Good talking to you too, Julian. Thank you.

 

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