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 The Brancatelli File

joe ALL THE JARGON, ALL THE FACTS:
UNDERSTANDING THE WACKY WORLD OF TRAVEL PRICING


BY JOE BRANCATELLI

December 3, 1998 -- Theresa Bova and her husband were feeling virtuous. It was only the middle of August, but they had already planned their annual winter trip to Florida.

A two-bedroom/two-bath condominium in Boca Raton was rented and pre-paid for January through March, 1999. On December 27, an auto-transport company would pick up their maroon Mitsubishi in New York, truck the car to West Palm Beach International, the airport nearest to Boca Raton, and have it waiting for Bova and her husband when they landed on January 6.

All that was left to do was buy the airline tickets. Bova didn't expect a problem; several of her friends booked Florida tickets a week earlier and had paid $249 a person roundtrip.

But when Bova called her travel agent, she was shocked to learn that the lowest price for a roundtrip flight to West Palm Beach was $820 a person.

"I'm sorry," explained the agent, "but the computer says the $249 seats are sold out. So are all the other discount fares. All that's left is the $820 fare. Would you like me to try another date? Could you leave a few days earlier or later?"

"No, no," said Bova, "it has to be January 6. What am I going to do?"

"Call me tomorrow and we'll try again," said the agent.

Bova didn't understand, but she called again the next day. The $249 seats were still sold out, her travel agent said, but now the computer showed seats to West Palm Beach on January 6 were available for $200.83 a person roundtrip.

Bova was confused. "I thought you told me yesterday that all the cheap seats were sold out," she said.

"Yesterday they were. Today they're not," replied the agent. "That's how it works sometimes."

SOLD OUT DOESN'T MEAN WHAT YOU THINK IT DOES
The tale of Theresa Bova and the "sold out" discount tickets to Florida is not a bizarre sideshow in the increasingly convoluted game of airline fares. Similar economic passion plays are performed thousands of times a day, every day, around the country. Hotels, flights and cruises that are purportedly "sold out" one day are suddenly available just days, and sometimes only hours, later.

There is a simple explanation for these peculiar occurrences.

"Sold out" doesn't mean what you think it does.

When the travel industry uses the term, "sold out" rarely means there are literally no rooms at the inn and no seats on the plane. In point of actual, physical fact, the travel industry is rarely "sold out." On a average day in America, 30 percent of the nation's airline seats are empty and one out of every three hotel rooms is not rented.

So what do they really mean when they say sold out?

"Embarrassing as it sounds, 'sold out' usually means our computers have decided it won't sell you a seat at the price you want pay at the exact instant you're trying to buy one," explains the pricing chief of a major U.S. airline. "The computer can change its 'mind' five seconds later, or five hours later, or five days later. No human being--including me and the president of the airline--knows exactly what the computer is charging at any particular moment in time."

If you are concerned because your travel plans and your travel budget are at the mercy of a computer, you'll be frightened by the fickle nature of the digital demons. One widely accepted estimate suggests that airline computers change prices a million times during the course of a typical day. Prices are less volatile in the hotel business, but still subject to the machinations of a bank of computers.

"It sounds like an episode of The Twilight Zone, " admits the airline pricing chief. "I know people pay $200 when they were expecting to pay $500. I know some people end up paying $500 when they might have paid only $200. I know no one understands why everybody they meet on a plane has paid a different fare. But, by and large, when you consider half a billion people fly every year, the system works. The computers do a decent job of selling travelers tickets at prices they are willing to pay."

THE COMPUTERIZED FLEA MARKET
That last point is the crux of the matter. The travel industry's "yield-management systems"--that's what experts call the pricing computers--are programmed to estimate how much each individual traveler is willing to pay for an airline seat or hotel room. The machines are told to squeeze every last penny from every last traveler and ensure that each customer pays every dime they are prepared to pay.

Relying on a series of complicated projections and historical models, the computers constantly recalculate prices and allocate the inventory available at each price. The computer changes its assumptions from minute to minute, shuffling the numbers, reassessing its inventory and changing the ratio of seats it will sell at the current prices.

If this system sounds like nothing more than a computerized flea market, you're right. Travelers and pricing computers are essentially locked in an elaborate bargaining ritual. But instead of batting offers back and forth in the time-honored method of the souk, the computer sets a price, sells you something if you're willing to pay and claims things are "sold out" if you're not.

If you've guessed wrong, you'll probably come back tomorrow and pay what the computer demands. If the computer guessed wrong--as it did in the case of Theresa Bova--you can come back the next day and find that the computer has lowered the price to a level you're willing to pay.

How complicated were the negotiations for those two seats between New York and West Palm Beach on January 6? Although Bova didn't know it, she and her travel agent were bargaining with a computer that listed several dozen flights operated by nine airlines. The computer was spreading all the available seats over 89 separate prices, each with its own sheaf of rules and restrictions. Prices ranged from the $200.83 she eventually paid up for her nonrefundable, restricted economy-class tickets to $913.50 for unrestricted coach seats up to $3,194.42 roundtrip for first-class seats.

HOW TO PLAY THE YIELD-MANAGEMENT GAME
As you've probably figured out by now, it's no easy task to outguess the airline computers. For every Theresa Bova who got her discount fare by calling back another day, there are dozens of customers who pay much more than they should have. But there are some tactics to increase your odds of beating the airline pricing computers at their own game.

For starters, be flexible. The price of an airline seat can vary by hundreds of dollars based on the time you fly and the day you travel. If your goal is finding the absolutely cheapest seat you can buy, ask your travel agent or the airline reservations clerk to check for other times or other flights. Generally speaking, however, the least expensive fares are most plentiful for flights departing after noon on Tuesdays through Wednesday evenings, and on Saturdays. Cheap seats tend to be scarce on Friday and Sunday nights and Monday mornings, the times preferred by business travelers who must fly.

You'll also do best if you know the rules of the fare game. Booking early is usually the best strategy, since airlines generally make the cheapest seats available from 21 to 30 days before departure. Prices rise when you buy within 14 days of departure and continue to increase as you approach seven days, then three days, before flight time. Within 24 hours of departure, there are almost never cheap fares available because the pricing computers assume only people who must fly are buying seats on such short notice. The least-expensive fares are almost always nonrefundable, require you to pay within 24 hours of making a reservation and mandate that you stay over on a Saturday night.

Persistence also pays off. If a fare you covet is "sold out" when you first call, try again several hours or several days later. Remember that "sold out" isn't a statement of the physical realities, but rather a computerized negotiating tactic. And never assume the price you've been quoted or the price you see in the airlines' newspaper advertisements is actually the lowest fare available. Never book a flight until you've asked the obvious question--"Is this the lowest price you have?"--at least once.

Lastly, be reasonable. Remember the value of your time. It's almost always possible to shave $10 or $20 off the cost of an airline ticket. But if that savings comes only after three or four hours of calling and negotiating, have you really saved anything? Sometimes the best strategy when bargaining for an airfare is to pre-determine the price you're willing to pay for a seat. If you get the price you want, book the seat and forget about whether it is the "lowest" fare.

WINNING THE HOTEL-PRICING GAME
Although hotels also rely on the dreaded yield-management computers to set rooms rates, lodging systems are much less sophisticated than airline programs. Finding a room at the inn at the right price remains primarily a negotiation between two human beings.

But make sure you negotiate with the right person. Calling a major hotel chain's toll-free reservations number rarely yields the best price. The agents manning those telephone lines are clerks reading from a computerized list of available rooms and prices. They have no power to negotiate rates and rarely have the most current information.

Instead, call directly to the reservations office of the specific hotel you wish to book. The reservations agent on the premises usually has up-to-date information--and more power to negotiate.

Once you reach the on-premises reservations agent, accept one simple fact: that person is not listening to you. No matter how forcefully you say, "I want the least-expensive rate," or how specifically you ask, "What is the lowest price you have?" the agent will disregard your request and suggest the highest price first.

"Reservation agents are trained to quote the highest rates for the most luxurious rooms first," explains Bob Gilbert, chief executive of a major hotel trade association. "They are trained to start at the top of the price and room-category ladder. Unless you probe, keep asking for a lower price, you won't find out what the hotel has to offer."

How do you know when you've gotten to the bottom of the pricing ladder and are finally being quoted the best nightly rate? Only when the reservation agent is prepared to let you hang up without booking a room. Just keep asking, over and over, "Is that the cheapest rate you have?" As long as the reservation agent continues to offer lower rates, keep negotiating.

DRIVE PAST THE SURCHARGES AND FEES
Car renters almost never face a "sold out" situation. So many rental firms with so many vehicles are chasing so few customers that the daily cost of an automobile rental is usually lower than the price of renting a carpet-cleaning machine.

But that doesn't mean you shouldn't shop carefully for a car rental. Here's what to watch for:

Rate Variations Rental prices vary wildly from firm to firm. Nationwide, full-service companies usually charge more than local or regional firms because they offer more locations, newer vehicles and a wider selection of car types.

Geographic Vagaries In most parts of the country, rental prices are highest during the week, when business travelers are in town, and lowest on the weekends, when thousands of cars sit idle in the rental lots. But there are exceptions. In East Coast cities where car ownership is low--New York and Boston, especially--rental prices are higher on the weekend. Why? Locals rent vehicles for weekend getaways. Weekend rentals at resort destinations also tend to cost more than mid-week rentals.

Rate Restrictions The longer you rent, the cheaper your daily rate. In fact, weekly rentals for compact cars usually price out to $25 a day or less. But beware of restrictions. The "minimum-keep" rule, buried in the fine print of the rental contract, stipulates the minimum number of days you must keep the car. In most cases, you must keep the car for at least four days to qualify for the weekly rate. Return it too soon and you may be charged a rapacious daily rate instead. On the other hand, keep a car too long past the rental period and you'll be charged exorbitant hourly rates for the overtime.

The Insurance Trap Basic rates are so low that car-rental firms try to make a profit by selling you insurance at stratospheric prices. One example: at $15 a day for the collision coverage, rental firms are charging you a whopping $5,475 on an annualized basis. Check your homeowners and auto insurance and you'll probably find that they include all the car-rental coverage you need.

The Refueling Rip-off Even in this era of cheap gas, car-rental firms charge upwards of $3.50 a gallon to refuel the vehicle when you return it. Avoid this trap by filling up before you return the car.

This column originally appeared in The Basics magazine.

Copyright 1993-2004 by Joe Brancatelli. All rights reserved.