In the first post in this series, How airline prices get made, I covered the three main ways a filed fare can be created: a specified fare, an add-on or an end-on-end combination. Add-ons are the workhorse for offline markets because one filing can extend many base fares into new destinations.
That example used London to Koh Samui, connecting once in Bangkok: a $300 London to Bangkok fare plus a $100 Bangkok to Koh Samui add-on produced a $400 through fare.
The trade-off is that the new market inherits a price built for somewhere else. Put three airlines in the same market and that can produce three very different answers.
Keep London to Koh Samui in view. The cities and routing are real; the fare constructions below are simplified examples, not a review of any airline’s current filing.
Airline A starts with a London to Bangkok fare and uses an add-on to extend it to Koh Samui.
Airline B starts with a fare from one of its European gateways to Koh Samui and uses an origin add-on to collect the passenger in London.
Airline C uses a long-haul base fare in the middle, then adds London on one end and Koh Samui on the other.
All three airlines can sell London to Koh Samui. None of the three started by deciding what London to Koh Samui should cost.
The construction is doing the pricing
Airline A’s price is anchored to London to Bangkok. Airline B’s price is anchored to its gateway market. Airline C’s price is anchored to the long-haul sector in the middle.
Those base markets have their own demand, competition and fare structures. They may have very little in common with the market the customer is shopping.
The rules can be just as disconnected. If a fare structure is defined country to country and the offline point sits in a different country from the gateway, the inherited rules may not fit the full journey very well.
Which airline is most competitive? It may be Airline A in this example. Change the gateway, move the add-on to the other end or look at the next thousand markets, and the answer changes.
It is largely a matter of chance.
What the misses look like
The result usually falls into one of two buckets.
The price is too high. The airline technically has a fare, but it is not competitive enough to be seen or bought. The carrier is present in the market on paper and absent when the customer shops.
The price is too low. The fare sells, but below a level the market may have supported. The airline gets the booking and misses a yield opportunity.
Neither miss looks dramatic in one small market. That is why the problem can sit unnoticed for years. Across a long tail of markets, however, demand is lost where the inherited fare runs high and yield is left behind where it runs low.
The airline may also be doing a surprising amount of work to maintain that result. As described in the first post, three add-on levels applied across five tariffs can require fifteen add-ons and five routing maps. The team is busy maintaining the construction, even though the market itself has not been analyzed.
Start with the market
Now take a fourth airline. Instead of asking which base fare can be extended into London to Koh Samui, it starts with London to Koh Samui.
It looks at the fares customers can buy, the routings it can support and the amount owed to each partner. It then files a specified fare for the market being sold.
This is not a new pricing discipline. It is what airlines already do in their core markets. The difference is that nobody can repeat the exercise manually across thousands of low-demand city pairs.
Automation changes that constraint. A pricing system can identify partner connections, build valid routings and generate specified fares across large volumes of markets. The airline still owns the strategy, the partner economics and the revenue management controls.
That gap can be measured. In anonymized work with one airline, comparing inherited add-on fares with market-priced specified fares exposed both sides of it.
Some inherited fares were too high to compete. Others were lower than the market supported.
The analysis did not point to a blanket fare reduction. It showed the value of pricing each offline market from its own competition, routing and partner economics, while staying inside partner payout and network revenue management controls.
The goal is not to make every offline fare cheaper. Some inherited fares need to move down to compete. Others have room to move up.
The point is to make the answer depend on the market instead of an unrelated base fare.
Having a fare is not the same as pricing a market
Add-ons do the job they were designed to do. They make a broad network sellable without asking a pricing analyst to manage every city pair.
They do not guarantee that the resulting price or rules fit the market. A saleable fare can still be too high to sell or lower than it needs to be.
The natural response is to ask whether more competitive offline fares will dilute revenue the airline already earns. That concern deserves more than a slogan, because the answer sits in the way network revenue management already controls connecting demand.
That is the final post in the series.
Previous: How airline prices get made.
Next: Dilution is not the risk you think it is – coming later in August
