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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As you note, each airline has their own algorithm, and may even use different algorithms for different routes, and exactly how they calculate it is generally a trade secret.
One very simple idea is to set the price based on the number of seats remaining. When you get really close to a flight, they you likely want to drop the price as an empty seat brings in nothing. What decides if you are “close to” a flight will vary: business travelers tend to purchase last minute, while tourists tend to purchase early. They are likely to also mix in historical data for any given route., especially for the initial pricing.
People will pay the really high prices. $1,500 is cheap if your flight will make the difference between getting a $10,000,000 deal and not getting it. Somebody might also take it to see a loved one that suddenly got much sicker – flying today or tomorrow may make the difference between being able to say goodbye or not.
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