Assume each airline different, but they clearly track each others’ prices, and certain market dynamics/forces/availability levels seem to cause the algorithms to get derailed into nonsense land. Ex: I am looking at flight from between two cities 1000km apart. a month from now i see $159 dollar flights. looks like average in the 200s. this week, two airlines both show options tuesday and thursday. Airline A, tues nonstop economy: $1500 (lol), B $1300. thursday A: $670, B: $590.There is just no way anyone is buying for 1500 right? are there people out there (that can’t afford private) but hate money so much they are spending 1500 on a one hour flight? or do runaway algorithms actually cost airlines sometimes?
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Airlines employ teams of people called Revenue Management. Their job is to figure out, not what a flight is worth, but what you are willing to pay for it. There are many factors that go into what you are willing to pay: your need for that particular flight (could you possibly take a cheaper flight a different day, or to a different airport?); how many seats are available (is it the last seat, or is the flight half-empty?); how great is your need to take this flight (is it a want or a need?).
But, don’t assume that it is some complicated algorithm. In my job I have worked with Revenue Management closely, and often the answer is “Well, that route is going for $700 on KAYAK right now, so quote that.”
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