This is how airlines price tickets | CNBC

Many of us this summer will fly off on holiday for a well-deserved break. It’s more than likely that you spent hours on the internet researching flight deals, trying to figure out an airfare pricing system that seems completely random.

Fees appear to fluctuate without reason and longer flights aren’t always more expensive than shorter ones. But what seems random is actually airlines’ dynamic pricing, using a strategy called airline revenue management.

It works in real time with one aim — to boost revenues. The decisions are being made by an algorithm that adjusts fares by using information including past bookings, remaining capacity, average demand for certain routes and the probability of selling more seats later.

The evolution of airfare pricing
It’s a far cry from the first years of commercial aviation when the industry was a tightly regulated marketplace. Most international routes were operated by a single national carrier and the lack of choice resulted in uncompetitive fares for consumers.

Deregulation, however, changed all that, removing government controls over routes, fares and market entry for new airlines.

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This is how airlines price tickets.