Cracking the Code: The Secret Origins of Cheap Flights

Cracking the Code: The Secret Origins of Cheap Flights - The Early Days of Airline Deregulation

The airline industry we know today took flight thanks to sweeping deregulation in the 1970s. Up until 1978, the Civil Aeronautics Board tightly regulated air travel in the United States. The CAB dictated which routes each airline could fly, how much they could charge passengers, and even what planes they could operate. This system ensured profitability for airlines, but at the cost of high fares and limited options for travelers.

Deregulation changed everything. President Jimmy Carter signed the Airline Deregulation Act in 1978, eliminating the CAB's control over airfares and routes. The free market took over, with airlines now able to set their own prices and add or cancel routes at will. No longer shackled by regulation, carriers had incentive to lower fares to stay competitive. New airlines like People Express leapt in to challenge the established legacy carriers.
Early years of deregulation brought massive change. Airlines chopped fares, while adding and canceling routes almost daily. Travelers benefited from 40% lower airfares on average, enabling millions of new flyers to take to the skies. But deregulation also unleashed brutal competition and bankruptcies. Once-giant Braniff shut down in 1982, while others merged to survive.

Despite the early chaos, deregulation achieved its goals. More choice and lower fares fundamentally reshaped air travel. While bankruptcies and mergers continued over the decades, travel evolved from a luxury to something nearly anyone could afford. Deregulation enabled the rise of low-cost carriers like Southwest, pioneering cheap point-to-point travel. Major airlines reinvented themselves, slashing costs and unbundling amenities to offer discounted basic economy fares.

What else is in this post?

1. Cracking the Code: The Secret Origins of Cheap Flights - The Early Days of Airline Deregulation
2. Cracking the Code: The Secret Origins of Cheap Flights - How Airlines Use Data to Adjust Fares
3. Cracking the Code: The Secret Origins of Cheap Flights - The Rise of Budget Airlines
4. Cracking the Code: The Secret Origins of Cheap Flights - The Psychology Behind Airline Pricing

Cracking the Code: The Secret Origins of Cheap Flights - How Airlines Use Data to Adjust Fares

In the fiercely competitive airline industry, fares are far from fixed. Airlines continuously fine-tune prices across countless routes, tweaking them to maximize revenue based on supply, demand, and a trove of data. This dynamic pricing takes place behind the scenes, with fares fluctuating right up until booking. Understanding how airlines leverage data can help travelers sniff out deals.

Revenue management systems crunch massive volumes of data to set ideal fares. Airlines analyze past booking patterns, forecast demand, and consider external factors like holidays or events. If a flight is filling up quickly, revenue managers may hike fares to capture higher yields from late bookers. For empty flights, they may progressively lower prices to lure passengers. But pricing strategies go far beyond just supply and demand.
Customer data guides complex airline pricing formulas. Travelers who book early and avoid price-shopping get hit with higher "lucky you" fares. But airlines will offer those who comparison shop aggressive deals to win their business. Frequent flyers also reap lower fares for their loyalty. Families and business travelers tend to pay more as they book last-minute and are less price sensitive. Even browsing history can influence pricing algorithms.

Cracking the Code: The Secret Origins of Cheap Flights - The Rise of Budget Airlines

The proliferation of budget airlines has revolutionized affordable air travel, bringing flights within reach of the masses. While full-service airlines pamper passengers, budget carriers strip away frills for rock-bottom fares. This no-frills model allowed budget airlines to flourish across Europe in the 1990s before taking flight in Asia and America. Understanding the budget airline boom helps decode today's cheap flight landscape.
Pioneering budget airlines Southwest in the U.S. and Ryanair in Europe inspired copycats worldwide. The business model is simple - fly point-to-point without the hub networks or amenities of full-service rivals. A fleet of one or two plane types maximizes efficiency and cuts training and maintenance costs. No assigned seats and online-only booking avoid expenses and middlemen. Charging extra for bags, drinks, food, and everything else keeps fares tantalizingly cheap.

The budget blueprint works. Ryanair grew from a single plane in 1985 into Europe's largest airline, ferrying a stunning 149 million passengers in 2019. easyJet cruised into second place with 96 million passengers annually. Powerhouses like Southwest and JetBlue drove budget revolution stateside. Mimics sprouted everywhere from AirAsia (1996) to FlyDubai (2008), bringing budget flights to new masses worldwide.
For travelers, the budget boom ushered in a golden age of affordable flying. Pre-pandemic, hopping between European capitals could cost pocket change - Bergen to Oslo on Norwegian Air for under $25, Barcelona to Madrid with Vueling from $19. Cross-country U.S. flights like New York to L.A. dipped below $200 round-trip on JetBlue. Budget subsidiaries like Eurowings brought low-cost long haul to the world.

Cracking the Code: The Secret Origins of Cheap Flights - The Psychology Behind Airline Pricing

Decoding airfare requires understanding the elaborate psychology airlines use to extract maximum revenue from travelers. Airlines leverage cognitive quirks and biases to manipulate pricing perception and extract every possible dollar. It's a constant mind game played across countless fare classes, restrictions, and purchase options.

Recognizing the psychological tricks in airline pricing helps avoid overpaying and reveals where genuine deals lurk. The most fundamental bias airlines exploit is anchoring. Early bookers snapping up lower lead-in fares establish an anchor price in consumers' minds. Subsequent higher fares appear justified relative to the anchor, rather than seeming excessive in isolation. Airlines reinforce the urgency to act fast and lock in "Great deals!" before fares inevitably rise. In reality, some lead-in fares sell out quickly while others remain open for months.
The rush to avoid feeling ripped off by higher last-minute fares causes many to book preemptively. But airlines bank on most travelers' poor intuition about future prices. Late-booking leisure flyers often have flexibility and just need reassurance that procrastinating won't cost them hundreds extra. Savvy travelers set fare alerts and pounce only when deals materialize for their dates.

Partitioned pricing also enables airlines to maximize revenue through psychology tricks. Unbundling amenities into fees for baggage, seat assignments, etc. makes base fares appear strikingly cheap. Yet most fliers will tack on options that often exceed the cost of an all-inclusive fare on a full-service airline. Sneaky psychological ploys are even embedded in upgrade pricing. Research revealed simply raising the suggested tip amounts resulted in higher tips. Similarly, presenting premium seat upgrades starting at higher preset tiers increases acceptance of upgrade splurges.