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Airline Tickets pricing software: Flight Agent
By: Edward Hasbrouck (justin) 2011.02.12

Travelers used to take travel agents for granted. Of course each airline couldn't have a ticket office in every town. So if you wanted a ticket, you went to a travel agent. They charged the same price as the airline, and they might also give you some free advice along with your ticket. The airline paid the agent 10 percent of the price of your ticket as their commission.

That worked well enough for travelers and travel agents, but not so well for the airlines. Why? (Most businesses are delighted to outsource their distribution. It's much more expensive for airlines to pay their own employees to take reservations and issue tickets.) But travel agents represent many different airlines. The bigger, better-known airlines resent paying commissions to travel agents who - rather than lose a sale - will tell a customer who can't afford Air Established that Air Upstart would be cheaper.

As 800 numbers, Fedex, electronic tickets, and the Internet make it easier for airlines to deal directly with customers throughout the country, airlines are trying to eliminate travel agents as a source of independent advice to consumers. Over the last five years, travel agents' commissions from most U.S. airlines have been reduced from 10 percent to either five percent or $50 per round-trip ticket, whichever is less. Online travel agencies get less: a maximum of $10 per ticket.

The result is that most travel agents have started charging fees for their services, prompting travelers to start thinking, often for the first time, about what it is travel agents do - and whether it is worth the price. In order to avoid fees, many travelers are using the Internet to become their own do-it-yourself travel agents, which requires even more knowledge of travel agents' skills.

So how do travel agents work? How much skill does it take? Should you use a travel agent? In finding prices for tickets, travel agents' primary tools are the "computerized reservation systems" or CRS's that provide information on flights, availability of seats, and prices.

Travel agents were the first and remain among the most highly computerized of businesses, but that doesn't mean that the computers have all the answers. The problem for travel agents and consumers alike is that all CRS's are owned by the airlines and provide only that information, in that format, which the airlines choose. Airlines have no interest in getting you the lowest price, and CRS software is not designed for consumers' benefit. The interfaces and software tools available to travel agents in querying the CRS's are vastly more powerful than the dumbed-down CRS interfaces provided by online travel agencies, but it still takes considerable skill to use a CRS to achieve a purpose - finding the lowest price - directly opposite from its designers' goals.

Most people intuitively conceptualize the problem as one of searching for the cheapest ticket, as though there were a database of prices corresponding to price tags on each seat on the plane. But it doesn't and couldn't work that way at all. The same seat might be sold as a one-way ticket, as part of a set of connecting flights, or as part of a round-trip ticket returning on any one of many different dates. Each of those would give that same seat a different price. So it's necessary to ask the CRS separately for information about which flights have seats available, in which "booking classes" (typically there are 8-12 classes on each flight), and about the rules of the fares that might apply to those classes if available. The displays of possible fares contain no information about whether any seats are actually available at those fares, which is why travel agents typically have to go back and forth several times between fare and availability queries before they find a fare at which seats are actually available in the proper booking class on your dates.

This iterative query process is much more complex and intuitive, and much less easily automated, than a database search. Even travel agencies that have tried to build automated price optimization robots are limited by the query language provided by the CRS's. (Some online travel agencies provide a "Find the lowest fare" command, but its function is more to make you feel better about clicking on the "buy" button than to actually do what it says.) There is no command to provide information on all possible flights; it's only possible to ask about one or a few flights at a time.

Airline tickets have the most complicated price structure of any product or service in the world. Literally millions of airfares change every day. Each fare has several pages of rules, spelled out in often-confusing text. CRS's do, at best, a barely adequate job of figuring out whether a particular set of reservations satisfies the rules of a particular fare. Unskilled travel agents take the CRS's pricing interpretations as gospel, but skilled agents review the rules themselves. On complex international tickets, automated CRS pricing is wrong at least half the time. Thus far, we've been talking only about the official fares. By law, airlines can sell tickets only at prices published in their public "tariffs". Since the airlines run the CRS's, these are the only prices they show. But travel agents can, quite legally, sell so-called "consolidator" tickets for less than the airlines official prices, especially on international routes. And certain special fares, such as those exclusively for students, aren't in CRS's (or the online travel agencies that rely on them) either. Hundreds of consolidators set their own prices, the official prices in the CRS's are only a small fraction of the actual universe of possible prices. The deceptively comprehensive-looking glut of CRS prices displayed by online travel agencies is only a small fraction of the actual universe of available prices.

A good travel agent will check separate databases or printed price lists for consolidator or student fares as well as published fares from the CRS. As with official fares, though, consolidator price lists contain no information as to whether seats are actually available on any particular dates. So the agent has to go through the same back and forth process between prices and availability to find a price for which qualifying seats can be confirmed. Most consolidators are wholesalers who don't deal directly with the public, and none of the largest online travel agencies yet lists any consolidator prices.

Even with electronic tickets, online travel agents are still required to send a printed confirmation outlining the terms and conditions of the ticket. And they have huge computer costs, including fees to the CRS's for each query, even from someone who decides not to buy a ticket. No travel agency that sells tickets at official fares can hope to make money on a $10 commission per ticket. At industry meetings, I've heard them all acknowledge quite openly that the only way they can possibly make a profit is by selling the information they collect about travelers to telemarketers, junk mailers, spammers, and their ilk. Travelocity, the largest online travel agency, backed down from such a "data mining" plan last year when news of it was leaked. No major online travel agency promises customers that it won't tell marketers everything it knows about them and their travel plans. The only exceptions are discount travel agencies whose prices aren't set by the airlines, and who thus can sell tickets more cheaply than the airlines yet still make enough to cover their costs without having to sell out their customers' privacy.

There are some online consolidator and student travel agencies, but they have far fewer computer resources. As a result, their databases generally include only a small sampling of consolidator prices, or only student prices, and don't integrate them with published fares (which the airlines and CRS's make as difficult for them as they can). So there's no comprehensive online source with access to all published, consolidator, and student fares. Since you never know which will be cheapest, no single online source can guarantee the lowest price. (Anyone that claims to "guarantee" the lowest price is lying.)

So where should you buy your tickets? Directly from the airline? Most consumer experts agree that that's the worst choice of all: airlines have no reason to give you lowest price, and generally won't. In my opinion, efforts to make them do so are completely misguided. In what other industry would you expect a supplier not to try to get you to pay as much as they can? Asking the airline how much they want to pay for your tickets is like asking the IRS how much tax they want to pay. They'll give you an answer, but not necessarily one in your best interest.

Should you buy tickets from an online travel agency? Maybe, but only if you have more time and money, are prepared to spend quite a bit of time learning how to use their limited tools effectively, and only if you compare prices from sources of consolidator and student prices (offline or online discount and student travel agencies) as well as from a site for official fares.

Should you buy your tickets from a travel agent? Maybe, but only if you are prepared to pay for their services. For the simplest and least expensive domestic tickets, it may not be worth it. The more expensive or complex your trip, or for any international travel, it may well be.

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