Here’s something that I find to be pretty interesting…
In this post:
There’s no “right” way to price flights right now
With demand for air travel in the US having decreased by over 95%, there’s no right way for airlines to go about pricing flights. Revenue management used to be an art form, while right now it’s, well… not.
There are several approaches airlines could take towards pricing flights right now, including a couple of extremes:
- They could offer incredibly cheap fares even below their marginal costs, like American’s $16 Miami to Los Angeles fares; at the same time, airlines shouldn’t be trying to stimulate demand right now, as people should be home, and what’s the point of selling a flight below the marginal cost?
- They could offer incredibly high fares given how much capacity has decreased; at the same time, the optics of this would be terrible, given that it’s largely essential workers flying, and that airlines have just received a government bailout
In reality I’m seeing most flights in the US right now priced somewhere between the above two extremes, though for the most part I see fares that are lower than they used to be. Given how little demand there is, I guess that’s about as good of an approach to take as any?
American 737
Looking at comparative airline pricing
A big shoutout to reader Ethan for this. He sent me an email with the idea for the post, and even with the below screenshots. From my perspective it doesn’t get much better than that. 😉
Ethan decided to do a quick informal study comparing fares on American and Delta during the COVID-19 crisis. He did this by:
- Comparing nonstop flying pricing between American and Delta hubs (where neither airline has an advantage)
- Looking at roundtrip flights on a particular date in a few weeks
On the surface looking at fares over one date isn’t going to give you a full sense of a carrier’s pricing strategy, though in this case perhaps it does somewhat, given how low demand is.
I do think this actually gives us a pretty good sense of the pandemic pricing strategies of these two airlines, especially given the consistent theme.
How does pricing between American and Delta compare for six different city pairs?
Between Atlanta and Charlotte:
- American has fares starting at $94 roundtrip
- Delta has fares starting at $242 roundtrip
Between Atlanta and Miami:
- American has fares starting at $93 roundtrip
- Delta has fares starting at $247 roundtrip
Between Detroit and Charlotte:
- American has fares starting at $96 roundtrip
- Delta has fares starting at $207 roundtrip
Between Detroit and Philadelphia:
- American has fares starting at $93 roundtrip
- Delta has fares starting at $201 roundtrip
Between Atlanta and Chicago:
- American has fares starting at $197 roundtrip
- Delta has fares starting at $297 roundtrip
Between Atlanta and Dallas:
- American has fares starting at $100 roundtrip
- Delta has fares starting at $137 roundtrip
Obviously these are some specific examples, but it reinforces what I’ve seen in general when pricing flights — American is pricing significantly lower than Delta across the board right now.
What should we conclude based on this?
As I said above, I don’t think there’s a right way to go about pricing right now, though I think we can kind of get a sense of the strategies of these two airlines:
- Delta is largely trying to maintain regular pricing (at least as much as possible), recognizing that they shouldn’t be trying to generate demand, and hoping that people will choose Delta because they know they’re a quality airline
- In the case of American, I’m not exactly sure what their strategy is; I’m not sure if they’re actually trying to create demand with Spirit Airlines-esque pricing, if this is a “thank you” to taxpayers and/or essential workers, or what
Delta 737
Bottom line
Airline pricing throughout this pandemic has been puzzling, to say the least. We’ve seen airlines sell tickets at below marginal costs, and I’m not sure if that’s intended to stimulate demand (which seems irresponsible short term), or if it’s more of a “we’re bleeding money anyway, so we might as well give away tickets” approach.
Have you noticed any interesting trends when it comes to airline pricing right now? How do you think airlines should go about pricing in the current situation?
I just tried to book a flight to Belize from Toronto using Delta. Same day flight. Prices were 1342.00 for ONE WAY One person. Yet through United and American Airlines for same dates the price was 320.00 I mean Delta is a great Airline but not at that price. Hell no!
Did a search for fares to Paris. I discovered that American and Delta have fares of 287.00 RT until March 15. JFK to CDG. Also, Air France Codeshare is included with Delta. Incredible. Why?
I cancelled a flight with American a few days ago because they changed my itinerary from nonstop to connection through PHX. I was on the phone for 2 minutes with AA and cancellation was approved, just had to fill out a quick form online and will get a refund to my credit card within a week or two. Very easy experience.
A relevant question right now to me is whether the airlines are giving full refunds without fees to people whose flights have been canceled. I’ve heard that they are giving people a hard time. That seems very inappropriate given a big government bailout and the fact that full refunds have always been the standard practice if your flight is canceled or changed.
American's approach to pricing goes back to its DNA with regards to yield management. It could be useful for AA to get "real time" data on this sort of shock to the system because it hasn't before. It looks like they are actually trying to find a pricing floor. That's really interesting. Yield management works best with actual historical data points in its formulas rather than an assumption. American and Marriott developed the first computer...
American's approach to pricing goes back to its DNA with regards to yield management. It could be useful for AA to get "real time" data on this sort of shock to the system because it hasn't before. It looks like they are actually trying to find a pricing floor. That's really interesting. Yield management works best with actual historical data points in its formulas rather than an assumption. American and Marriott developed the first computer systems for yield management in the late 80's.
The price of flights from Los Angeles to New Zealand on both American Airlines and Air New Zealand has been continuously crawling up for economy, premium economy and business the past two months for next December Through February. Round-trip on business is $2000 more then a little bit more than a month ago. What’s that about?
I love reading all the comments of you people who fly delta but are bitching about how they aren't doing you any favors. You're probably the same ones i see up in FC...all tv monitors on Fox news. Yeah...u fox news boys are supposed to be so pro biz. So why u hating on delta for making money? Isn't that what you always say to the "libtards" ...that they love socialism and are mad people...
I love reading all the comments of you people who fly delta but are bitching about how they aren't doing you any favors. You're probably the same ones i see up in FC...all tv monitors on Fox news. Yeah...u fox news boys are supposed to be so pro biz. So why u hating on delta for making money? Isn't that what you always say to the "libtards" ...that they love socialism and are mad people are making money? Quit complaining or go fly someone else...take a look at united. They're really raping you. Looked at a rt ord-lax tues-tues trip. Ual wanted 536(!) While dal 238 amd aa 91. AA will take any dollar not nailed down at this point because they are so heavily in debt!
At least delta has been very financially disciplined. They will pay off this debt in 4 years..while aa will take 16 for the same short term debt.
@Dca
@George is pulling our legs. With a lockdown in place in 50 states? he's a hired Delta bot, trying to convince us that its' OK to fly DL again.
it's not and 97% of the US population concurs
Pffft.
Classic Delta. Not doing anybody any favors at this stage.
So, we should be upset because AA offers lower pricing? Seems like there is a bias for American every single time. Us the consumers don't care that Delta is trying to keep "regular levels" what is normal any way? I am glad that American is getting with the times and offering better pricing because I will give them my business, and their product is a quality product as well, so the price differentiation is enough for me to book them.
@CRAIG
BTW if anyone is looking for a car the rental fleets are dumping their vehicles.
DON'T. I can't even imagine what a one year 38k 4Runner has been through. I used to talk to a manager about their experiences, he used to see a customer totaled a car with less than 10 miles on it or even bullet holes!!!!
I personally witness my share of experience too, a half eaten McNuggets that looks at least a month old (they hardly look old) in the sunglass compartment.
Essential workers are
Not flying.
these people are flying because they want to see their boyfriend, taking kids to see their grandparents...
That’s the problem .....
@George - why so much flying the next few weeks? Is it actually essential travel?
The main theme I need from Airlines is the assurance that our planes are clean and sanitized. IE- I will not become infected on your plane.
Let's face it.... They have time to clean.
Early in March I booked a R/T to Delta in Delta One for a May flight. The airline sent me an email cancelling the reservation And did not even try to call me or rebook me on an alternative date as they have been doing with their currently cancellations. They did not refund the amount but gave a me “credit” and now if I want to book a ticket for the following week they are...
Early in March I booked a R/T to Delta in Delta One for a May flight. The airline sent me an email cancelling the reservation And did not even try to call me or rebook me on an alternative date as they have been doing with their currently cancellations. They did not refund the amount but gave a me “credit” and now if I want to book a ticket for the following week they are charging 3x more for the same route on Delta One. I am a Diamond FQTV and I am appalled by their malicious games .... considering filing a report with BBB but they are probably rated an F already
These are all American hubs or non delta city hubs. Why not compare any dc airport with la,ny, or phoenix hubs. If you are choosing american or united primary areas, it defeats the purpose.
I have no idea what American is thinking with their $20 fares... BUT I do know that despite much fewer flights, no weather, no congestion, almost no passengers, American still manages to have 30+ minute delays! I watched a flight from DFW-MIA land 30 minutes late, yet the arriving aircraft to DFW got in 30 minutes early. Go figure.
One thing which is likely to come out of this -- higher fares. People have...
I have no idea what American is thinking with their $20 fares... BUT I do know that despite much fewer flights, no weather, no congestion, almost no passengers, American still manages to have 30+ minute delays! I watched a flight from DFW-MIA land 30 minutes late, yet the arriving aircraft to DFW got in 30 minutes early. Go figure.
One thing which is likely to come out of this -- higher fares. People have been so conditioned about 'social distancing' that they're going to demand the same with the airlines. So expect planes to only be 50%-60% full at most, which is going to mean higher prices.
Dropping fares significantly is a dangerous strategy in my opinion. As you and others have stated - there's no demand to stimulate right now so...what exactly is the benefit of selling rock bottom fares? I'm not sure how they are managing their RM systems but it can screw things up there if they are trying to significantly drop pricing.
A few months out, they'll want to be much more diligent with pricing - just dropping...
Dropping fares significantly is a dangerous strategy in my opinion. As you and others have stated - there's no demand to stimulate right now so...what exactly is the benefit of selling rock bottom fares? I'm not sure how they are managing their RM systems but it can screw things up there if they are trying to significantly drop pricing.
A few months out, they'll want to be much more diligent with pricing - just dropping fares to drive demand isn't a great strategy if it erodes all pricing power and you're flying a bunch of planes with a lot of people but all at a loss...
While looking for RT to either Oakland or LA for a late July trip on Southwest before the CV19 we were looking at $400. Since the virus I have seen it drop to $234 then $226. This past Saturday it jumped back to $358. On Sunday it dropped back to $314. Come Tuesday it was $266 midweek and other days $288. Strange pricing. It seems as of yesterday the had lowered their prices through October.
@Lucky, I wonder with the significant decrease in actual flights in the air and small loads, I’d be curious to know if flights are getting to destinations quicker due to ability to get direct routing from ATC due to loss of conflicting traffic, and/or the ability to get higher altitudes due to lighter loads
My home airport is Charlotte, NC (CLT) which is the #2 hub for American and has long had oppressively high fares on average because of it.
I picked May 1 - May 5 and looked at direct flights to several destinations. NYC $195, WAS $95, DAL $175, LAX $336, CHI $135, RSW $217, MIA $435, ATL $167, PHX $336. All very reasonable with the exception of MIA. I kept the dates equal for comparison...
My home airport is Charlotte, NC (CLT) which is the #2 hub for American and has long had oppressively high fares on average because of it.
I picked May 1 - May 5 and looked at direct flights to several destinations. NYC $195, WAS $95, DAL $175, LAX $336, CHI $135, RSW $217, MIA $435, ATL $167, PHX $336. All very reasonable with the exception of MIA. I kept the dates equal for comparison sake perhaps the dates don't work well in MIA.
As of now the first bit of travel I may do is a trip to Cleveland Ohio in June. I would normally fly into CAK or CLE depending on the pricing at the time. I may rent a car this time it is a 8 1/2 hour drive but almost exclusively on one road I77 and with reduced traffic and only 1 stop for gas should be pretty safe and painless. Currently with my corporate discount its $81 one way plus tax plus gas.
BTW if anyone is looking for a car the rental fleets are dumping their vehicles. An acquaintance of mine in Georgia picked up a 2019 Toyota 4Runner with 38K for $17,000 at auction.
Fly AA! At least they have booze.
I was just talking to a friend about this the other day. ORD-LAX had such a wild variance. United was $505 while Delta was $228 and american $91. WTF?
There are some non-hub routes that DL has been having an absolute fire sale on - which bottomed out about 1-2 weeks ago. Best example I've seen: SFO to non-hub Midwestern cities. Even SFO-MSP was $59 in BE two weeks ago for early summer. And, often the r/t prices are only slight more than o/w prices. Strange, but it led to me booking all my travel for the rest of the year - friendly cancellation policy an added bonus.
All the itineraries you priced are originating in DL hubs, which should be higher priced on the carrier. Had you reversed the order to see how pricing is departing from the AA hubs, I'm sure you'd have seen that DL is cheaper in that case.
Meanwhile, roundtrip United flights between DCA and ORD are $396 across the board from mid-May through December (except for the Tuesday before Thanksgiving, of course).
DL always has been more expensive than AA. I didn't realized how much until I moved from a DL hub (MSP) to an AA hub (PHX) city a few years ago. Truly, not a huge difference in services (AA has fixed their operational issues so. . . ), I am not a big fan of IFE so perfer my own device and AA's wifi is wayyyy better. Seating pitch is the same, just can't wait for the old USAir A321's to get refurbished.
Delta is following sound principles of pricing which show that once you drop prices it's harder to push them back up again later. When you follow a competitor who discounts prices it simply becomes a race to the bottom.
I like this comparison of two different pricing strategies. I would also note that in addition to paid tickets, a fair number of Delta flyers who are flying to New York area airports today are medical workers on comp tickets or non-rev employees.
I don't think this is a good comparison at all. In the few flights I have been tracking for hopeful summer travel, all of which would require me to connect through either a Delta hub or American hub, Delta's prices have been significantly cheaper than American's.
Exactly what David said, originating in Atlanta is almost always more expensive on Delta and has been that way for longer than I can remember.
@ Ben -- Interesting. The higher pricing seems more logical to me.
This analysis ignores the fact that Delta prices flights higher for Atlanta captive hub flyers.
Searching your same dates DFW-ATL on Google Flights, I see 4 Delta options at $143 and cheapest AA option is $151
One thing I did notice though is Delta's dynamic award pricing on skymiles is giving it an edge against its competitors. I live in NYC area and a lot of the one-way flights on Delta from JFK/LGA are priced at 5000-7500 miles one-way whereas for AA and UA, they're still priced higher (over 10k one-way).
American talked about this on at the JPM Industrials Conference. They said they determined they could stimulate demand by offering low fares and that it had been successful. Then again that was mid march but it does give you an idea into their thinking
@Lucky I think you unintentionally give bias to one airline here, as ALL the city pairs are listed Delta Hub to American Hub rather than the AA Hub being the departing airport. This makes a BIG difference as these airlines are “Hub captives” and they charge a premium for trips starting from their hub. Maybe test pairs where the start of the trip is a AA hub?
I am not sure it really matters at this point. At 5% yield with an uncertain economy and government bailout do you think it makes a difference?
We have already talked about this during the cocktail hours so not sure if it is even feasible to talk about an out game when we don't even know where things are going in the next 30-60 days.
With all that being said, I do think...
I am not sure it really matters at this point. At 5% yield with an uncertain economy and government bailout do you think it makes a difference?
We have already talked about this during the cocktail hours so not sure if it is even feasible to talk about an out game when we don't even know where things are going in the next 30-60 days.
With all that being said, I do think once we begin to open up, due to social distancing norms and lack of overall demand things will be different. No middle seats, maybe only one person to a side of a plane. That could be 1/3 capacity constraints right there. In that scenario you don't price for profit you price for marginal costs which is where I think we are going for at least a year or more. One upside is that fuel contracts will be purchased from now until they cannot sell them anymore because 1 gallon of 87 gasoline is 94c at Sam's Club in Ohio. That_will_not_happen_again in normal times.... Jet A1 is down 69.7% from last year.
Delta is doing its flyers a favour by keeping tickets expensive. Because we need the MQDs!!
I did exactly what Delta hoped. Booked 6 trips last week in the USA for the next 6 weeks.
Just... willing to pay the extra price to fly Delta, not another carrier.
Then snagged a paid J R/T to Europe on Delta for later in summer, and o/w J award on Delta to Europe again for Fall.
So, their pricing is lower than normal, and it’s got me traveling every week for the next few months on DL. I think they played it perfectly to get people off the couch.
I just looked at LGA-PHX r/t for 03 May to 08 May on UA and it was $341.
That seems low to me but not that low.
Of course there are only three flight options on the 3rd so that's interesting.