Of all the arts required to run a successful airline, rental-car firm or hotel, the darkest and trickiest is revenue management. You start with a finite supply of profoundly perishable assets. Every flight on which a seat goes empty, every day that a rental car sits on the forecourt and every night that a hotel bed sleeps alone represents potential earnings that are lost forever.
Revenue management, which addresses this problem, is a modern concept. In the old days, prices were fixed. The variable was occupancy. A flight to Rome the day the school holidays began would book up months ahead, while one on a wet Wednesday in November would fly almost empty. Apart from early buyers, who grabbed flights for far less than others would have gladly paid, nobody benefited.
The nub of revenue management is that the variable is price, not occupancy. You adjust prices according to demand, filling as much capacity as possible while simultaneously extracting the maximum cash from each buyer of a bed, seat or vehicle.
That's the theory, anyway. Easy to say, impossible to achieve with any degree of perfection, even when you leave aside the not-always-rational behaviour of competitors.
Wringing the most from your inventory depends upon your knowing the maximum that every prospective customer is prepared to pay. Since such insight is plainly beyond the reach of any enterprise, the travel industry uses a blunt proxy. The presumption is that people who book early are likely to be the most price-sensitive, while anyone who enters the market very late – a few days, or even hours before departure – is likely to be prepared to pay a big premium.
Which brings me to the flight I took last weekend, on British Airways from Heathrow to Basel in Switzerland. When I booked it four months ago, the fare was already £145 one-way, rather than the sub-£100 price you might expect for committing in advance for a 90-minute flight. The reason: at the start of the school half-term, flights to any airport near mountainous bits of Europe are in maximum demand from skiing families.
A week before the flight, I happened to check which terminal at Heathrow I would be flying from. (Before you say, "It's BA, so therefore it's Terminal 5" allow me to explain that over the years the airline's Basel flights have wandered all over the airport. I have flown on BA to Basel from Terminal 1, Terminal 4 and even – during a brief code-share with Crossair – Terminal 2.) The quickest way to check its current whereabouts? Make a test booking at ba.com.
Except I couldn't. BA756 for 14 February had disappeared from the airline's inventory. Heavens, had I made a mistake? I used the "Manage My Booking" function and saw that I was indeed booked to travel (and yes, know-it-all, the flight was going from Terminal 5). But evidently the plane was sold out.
For any scheduled flight to have no seats left with a week to go is daft. It means that people who suddenly need to fly to Switzerland's second-largest city at 7pm on a Friday night and will pay whatever it takes, are denied the chance, and BA is denied the opportunity to earn handsomely for transporting them. The normal booking profile may have been disrupted by couples heading for a Valentine's Day city break in this romantic, artistic Swiss city, and then exacerbated by the extremely high fares prevailing to Geneva that weekend: passengers switching to a less-ideal airport could save a fortune, which was indeed why I booked it.
Once the flight approached capacity, BA might have made me an offer: "Switch to an earlier departure and we'll refund your fare." The airline could have earned a lot more than £145 from the seat and everyone would be happy: the person who can fly when they need to; BA's shareholders; and me, because £145 nearly buys a round of drinks in Switzerland.
Follow your calling
A similar notion has been floated in the US, but so far no airline has been brave (or technically sophisticated) enough to introduce it. American academics have come up with the idea of "callable" flights. When you book, the airline asks if you would be prepared to let the carrier "call" the flight – snatch it back, by a specified date, in return for an agreed payment to you on top of a refund of the original fare.
There is no obligation to give the airline the option – but once you are committed, you cannot change your mind.
Suppose you book a midweek trip to Rome for £200 return. Then a British team is drawn to play a big football match there. The airline knows it can sell your seat for at least twice as much. So it refunds your fare, gives you perhaps £100 for your trouble, and is still in profit.
"Callable flights" comprise a more sophisticated alternative to the overbooking rumpus at the airport, where airlines must offer increasingly valuable bribes to persuade enough people to forgo the flight.
Borders are confusing things, I find. Basel airport is actually in France, connected by a land corridor to Switzerland. And the fine town of Haltwhistle is in Northumberland, not Cumbria, as I mistakenly suggested last week. There is no excuse for my error, but the reason might amuse you: rather than trusting to the internet, I checked on a map, which I evidently misread. The county line is a few miles west of Haltwhistle.
The old ways are not always the best.Reuse content