D. Murali

WITH the unbelievably low Re 1 fare to fly in the domestic sector, the name of the new war in the air is airfare. All is fair in love and war, but if you're puzzled how airfare can touch such an abyss, not counting the Rs 221 PSF or passenger service fee payable to the Government, we need to start from scratch.

First question, how are ticket prices determined? The site of Gainesville Regional Airport, www.gra-gnv.com, has the answer: "The pricing on tickets is determined completely by the airlines." The URL adds that prices are based on the number of travellers on an aircraft and the cost of operating the aircraft. "Airlines offer various different fare (price) levels on each aircraft/flight."

Pretty simple, it seems, so you put the cost in the numerator and the number of people down to get the price. But that doesn't explain the sudden fall in the Delhi-Mumbai return airfare by more than a third, shortly after the launch of Kingfisher Airlines and SpiceJet.

Nor does arithmetic help you comprehend how 2005 can be `the year of the common man flying' as the Civil Aviation Minister asserts, as fuel prices rise.

From Gainesville again you can gain the knowledge that to get lower airfares, which constitute a tenth of the total seats available on an aircraft, you should purchase your tickets early. "Generally, the more lead time you have, the better your air fares can be." Remember, there's no guarantee that you'd secure a lower fare; only, you'd enjoy better chances on that score. APEX, as you know, is airline lingo for Advance Purchase Excursion Fare.

On `the crazy math of airline ticket pricing', Keith Devlin, Executive Director of the Centre for the Study of Language and Information at Stanford University, writes on the site of the Mathematical Association of America (www.maa.org). "The price attached to an airline ticket has got nothing to do with the length of the journey. It has everything to do with supply and demand," he explains, citing $2,350 as the fare for a San Francisco to Boston round trip as against $795 for flying all the way to Japan and back, both economy class. "The airlines employ some complicated computer programmes to try to meet a number of goals, the main two being to avoid flying with any seats empty and to maximise total net revenue."

There are further goals, such as weaning customers from other airlines, and also "from AC II and AC III" Railways market, as Mark Winders, chief operating officer, SpiceJet, would aim at. The desire to create customer loyalty, manifested as regular or frequent flying, does impact pricing. For instance, the `revamped' frequent flyer programme is `the fastest way to earn free tickets,' announces http://indian-airlines.nic.in. "If you collect sufficient mileage points, you can enjoy a pleasure trip with your entire family." An information portal for these loyalists is www.frequent airflyer.com. One of the options it lists is `Airline Frequent Flyer Miles Top Ups' that takes one to www.miles4sale.com where you can `buy frequent flyer airline miles' and `unlock your free airline tickets!' Just the stuff that can drive economists mad, because they believe in no free lunch.

"Airline pricing is a complex, unpredictable beast driven by three ugly words: competition, demand, and inventory," enlightens www.soyouwanna.com. "Airlines call it `yield management,' but we doubt if even airline CEOs fully understand it," it adds, quite reassuringly. Don't miss at the site `the tips to keep in mind when searching for a ticket'.

Let me get back to Devlin's article. He talks of further complexities such as advance reservation, `fly on particular days of the week or at unpopular times', a night stay tied up with a hotel, concession for a companion, and attractive prices for `less congested airports'. Insomniacs may emerge winners, especially when an offer, called `Internet special' opens for a brief window of time in the wee hours. Factor in also the use of `bucket shops' or third parties who buy blocks of seats from the airlines for further sale at discount prices to travellers.

"The result of trying to meet all these different goals, in a highly volatile market, is a ticket pricing system that has grown increasingly complex over the years, to the point where on some flights, no two passengers will have paid the same price, and where it may be cheaper to fly from Boston to New York via London, England, than to take the direct shuttle flight," notes Devlin.

He talks about the work of Jeremy Wertheimer, who as an Massachusetts Institute of Technology (MIT) student set out to develop an airline pricing search engine.

`Computer scientists find unexpected depths in airfare search problem,' is the headline of a story written by Sara Robinson a few years ago for the Society for Industrial and Applied Mathematics, and posted at www.itasoftware.com. Well, that's the company Wertheimer heads after his research along with Carl de Marcken culminated in a product that found ready users among airline companies. ITA Software, with 2 lakh lines of Common Lisp at its core, powers the searches for Orbitz (a fare searching site owned by five of the major airlines), and Delta Airlines. ITA claims to search "a far larger subset of the space of possible fares than other systems", but cannot guarantee the cheapest fare!

Were you to ask a cost accountant, he would educate you on how after a company recovers its variable expenses, any further revenue is contribution towards the offsetting of fixed outgoings. There is also the concept of break-even that is about the number of units you should sell to reach a point of no-profit-no-loss, from whereon every rupee that rings into your cash register is clear profit even if you're selling below total cost.

You may ask whether Re 1 isn't less than variable cost and, therefore, resulting in a clear loss. One explanation is that empty seats don't earn even that single rupee, and another way of looking at the dirt-cheap fares, from a marketing angle, is as a strategic talking point to get the airline noticed. However, de Marcken would draw your attention to the `strange accounting procedure' in the industry that has separated the cost from the price of flying.

Robinson cites another of de Marcken's observations: that airline can have thousands of fares, with different sets of associated rules for each leg of a trip. Thus, if two people take a round trip together, with three flights going and coming, there can be as many as 1000 {+1}{+2} or 10 {+3}{+6} fare combinations, writes Robinson. "If you printed out a ticket for each possible fare, the pile would stretch all the way to the nearest star, Proxima Centauri, four light years way," adds Devlin. Won't it then be too wicked to wish for an accounting standard on airline pricing? Or, too wishful to expect the pricing mechanism to get simpler and transparent?

"The scientific theory I like best is that the rings of Saturn are composed entirely of lost airline luggage," said Mark Russell, an American comedian, pianist and singer. The theory that should make sense to airlines is of a hell that is made entirely of empty flying seats, though for economists such a place would be where they are driven to figure out the how of airline pricing.

ZeroBase@TheHindu.co.in

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