Not so very long ago, it was always possible to grab a holiday or flight bargain by waiting until the last day or two before departure. Now the game has changed. Here is an outline of the factors which have caused the change.
The main driver for holiday costs up to the 1980’s / early 1990s has been the cost of airline seats. Tour operators had the choice to use scheduled carriers with special IT rates or group rates: but they also had the choice of chartered flights. In both scenarios, they had to make a commitment to a seasonal programme, and built their prices around seasonal yield. Especially in the case of charter flight series, an empty seat on the day of travel was a loss of value.
A well-managed programme allowed a certain number of empty seats (especially in low season) to be an acceptable loss – and one which could be mitigated by seat sales at any price the market would allow. Thus cheap flights, and the holidays which formed part of the packages, were available days before departure for those with a flexible attitude to destination and dates.
As bigger operators took control of all elements of the holiday package, “in-house” airlines took the management of this cost balance to a different level. Their pricing policies – or “yield management” equations – could be handled in the context of overall profit margins of the holiday company as a whole. But it is how these in-house airlines are run which pinpoints a major difference in those policies.
The rise of the so called “no frills” airlines has overturned the old pricing models. They no longer discount the day before you fly. Ryanair and easyJet amongst many others now use a pricing model first mooted by US carrier Southwest Airlines. And holiday company “in-house” airlines have followed suit.
What Southwest realised is that once you introduce an uncertainty about whether the price will fall at a later date, many people will delay buying. The “no frills” carriers, under the guise of offering absurdly low, loss-leading fares, have the advantage of controlling all their own sales through phone sales and online. Thus they can change the price every minute, based on “yield management” algorithms. They use that control to manage expectations of the buying public. They have chosen to ensure that prices continue to rise until take off – so if you resist buying early, you will never again see the price as low.
This policy – now taken up by in-house holiday airlines, encourages commitment to a specific flight (and also holiday) as early as possible. Cheap, last-minute bargains have largely been replaced by “early bird” offers and “points” cards to generate sales for slow trade periods or low season capacity – without unduly reducing the price the airlines and holiday companies can command for the last-minute traveller.