Airline pricing secrets: How carriers come up with fares

(CNN)Anyone who’s lost an evening researching flight deals knows that airfare pricing can seem pretty random — high one week, low the next and long-distance often cheaper than short-haul.

It’s called airline revenue management: the science of adjusting fares dynamically and in real time so that airlines can maximize their revenue.
And it’s not just a case of simple supply and demand.
Airlines now rely on ever-more sophisticated software that takes into account a broad range of factors, from overall conditions across their global networks, right down to the individual preferences of their passengers.

The evolution of airline pricing techniques



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Customer profiling

But how does the airline know who the higher-value passengers are and how much to charge them?
Stuart Barwood, founder of Travercial, an airline consultancy firm, says airlines can make a number of reasonable assumptions about the profile of traffic on a certain route and then adjust their prices accordingly.
“The London to Majorca route, for example, has a marked leisure profile. This has implications not only for fare levels but also for the way pricing changes over time.
“If the airline assumes that leisure passengers will tend to book relatively early, months before their holidays, it may be tempted to start pricing seats on that route relatively high. It would then adjust them according to the market response.
“Meanwhile on a typical business route — let’s say London to Frankfurt — the airline may start with low prices to fill a minimum of capacity, then raise prices steeply for business travelers that book at the last minute.”
In fact, those last-minute high-value passengers are so precious that some airlines go the extra mile to make room for them.
For example, a service developed by Barcelona-based company Caravelo helps airlines identify those passengers most likely to accept a flight swap in exchange for compensation, such as vouchers or frequent flier miles, and offers to rebook them on a later flight.
With space then cleared, the high-fare passengers are then booked onto the previously full flight.

Towards total customization

You might think of fare classes in terms of economy, business and first class, but the reality is airlines have dozens of subdivisions.
The airline will adjust the number of seats allocated to each fare class. When one class has been sold, the sale price will leap to the next one.
This is how most fares are currently set, but it’s still some way off from the ultimate goal: Airlines want to know their clients so well they’re able to offer fully personalized pricing.
Loyalty programs, registered users and cookie tracking can give airlines some valuable clues, but even when an airline has gathered a lot of data about its passengers they still might not be putting it to profitable use.

Adding up the extras

“In reality, it is quite common for passenger data to be scattered throughout several functional areas within an airline, kept in data silos where it is of little use to the revenue management department,” says Barwood.
Airlines might be lagging behind the likes of Amazon when it comes to personalized marketing, but Barwood says many are getting up to speed with data management and this is already being felt in pricing and marketing.
Revenue management systems will increasingly take into account not only the air fare itself, but the total value a passenger can generate for the airline, including ancillary revenue.
That’s all the extras that can be added to your base fare, and it’s a growing source of profit.
Using seat choice as an example, many airlines now charge for the privilege of picking your seats in advance.
This could, in theory, be managed dynamically. Why not base seat prices on the occupancy of a given flight? Or charge less to members of your loyalty program?
This kind of profiling might be beneficial to the loyalty program customer in this instance, but what about when a frequent business traveler is then consistently shown higher fares when they’re trying to book a family vacation?
It could well prompt a backlash among the sort of high value customers that every airline hopes to retain.

Protecting the brand



The loophole letting passengers fly on the cheap



And while airlines may have good reasons not to overcharge their best customers, they also have to be careful not to undercharge the other classes of client.
The temptation is to aggressively lower prices when there are still empty seats left before a flight departs — but if this becomes the norm there’s a serious risk of undermining the brand and alienating higher-value passengers.
A number of companies, such as Bidflyer, Plusgrade and SeatFrog, have come up with applications that allow airlines to sell upgrades to the highest bidder through an auction mechanism — an efficient but anonymous way to get passengers to tell the airline how much they’re willing to pay for premium services.

Back to basics

The apparent randomness of airfares makes for an excellent conversation topic with friends and colleagues, but it can also be a source of anxiety for many travelers.
Perceptions that prices are immensely variable can add to the fear that customers may be overcharged for any extras they inadvertently purchase, or the worry that they might not be getting the best deal out there.
Which is why many airlines have opted for a different approach: go back to basics and offer branded fares — a bundle of services for a closed price.
This shouldn’t be confused with the rigid fare system that prevailed when the first low-cost airlines hit the scene.
This is more like an evolution of the low-cost fare system which lets customers choose the extras they want to add to the base fare.
This approach means rebundling a bunch of services — from checked-in luggage to a wider, more spacious seat — into a number of fare package options of varying complexity, all selling for a set price.
Think of it as like the menu options at a fast food joint.

The airfare arms race

Airlines might have a whole battery of tools to help them extract the most revenue from their passengers, but travelers can also call on their own arsenal of technological countermeasures.
Companies such as Skyscanner and Kayak have introduced fare alerts which allow you to monitor fares for specific flights and get automated alerts the moment they change.
Some companies are also developing fare prediction technology that promises to help travelers book their flights at the optimal moment, when the fare is likely to be lower.
In order to do this they rely on their own algorithms, plus a heap of historical data on air fares.
California-based FLYR uses its own proprietary fare prediction technology to offer fare lock-in insurance in partnership with TripAdvisor.
This service is similar to buying a financial option where you pay a relatively small premium in advance, to make sure you won’t pay more than a certain amount at a later date.
It also works with travel agents and other distribution partners to optimize bookings.

Seizing the moment

FLYR’s founder, Dutch entrepreneur Alexander Mans, says that outside a 30-day window of a flight’s date of departure, there is a 60 to 70% chance that a specific air fare will drop in price at some point.
“It is practically impossible for someone to monitor this manually, but with our computing resources we can predict pretty accurately the chances of a fare coming down and advise on the best course of action.
“If we think a fare is going to be lower in the future, we recommend waiting, before hitting the ‘book’ button.”
Hopper is another company specializing in the field of airfare prediction. Its mobile app, which has been downloaded more than eight million times, uses big data technology to predict fares as much as 12 months in advance.
“Our system looks at six to eight billion air fares every day. Our database has five years of historical fares, that means trillions of prices!” Frederic Lalonde, Hopper’s founder and CEO, declares proudly.
He claims their algorithms are capable of accurately predicting an airfare within $5, up to six months before departure.
“We are confident enough in our system to predict actual figures and to tell our customers whether they are getting a good fare or not.
“We have tracked our accuracy to 95%. Whether people later follow our advice or not is another story…”
With this amount of computing power being thrown into the field of airline pricing and the expectation that artificial intelligence technology will go mainstream, it might ultimately be up to the robots to fight the airfare war.
This isn’t necessarily bad news — it may result in better choices and more efficient booking processes.
With virtually millions of different air fares — as many as the number of passengers airlines carry every year — what seems assured is that airline fares will continue to be a topic of conversation by the office cooler for years to come.

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Roomba creator responds to reports of poopocalypse: We see this a lot

Robotic vacuum cleaner is said to run over animal feces and continue its cleaning cycle around the house, spreading the mess over every conceivable surface

Jesse Newton found out the hard way what happens when a robotic vacuum cleaner encounters a dog turd, and it isnt pretty.

Newtons Roomba is scheduled to clean the living room of his home in Little Rock, Arkansas, at 1.30am each day, so that the family wakes up to a clean space. That all changed this month when his puppy Evie had an accident on the rug during the night, leading to what he described as the poopocalypse.

As Newton explains in a graphic Facebook post, the Roomba ran over the dog feces and then continued its cleaning cycle around the house, spreading the mess over every conceivable surface and resulting in a home that closely resembles a Jackson Pollock poop painting.

It will be on your floorboards. It will be on your furniture legs. It will be on your carpets. It will be on your rugs. It will be in your kids toy boxes. If its near the floor, it will have poop on it. Those awesome wheels, which have a checkered surface for better traction, left 25ft poop trails all over the house, he said.

Newton was helpful enough to draw a diagram.

A diagram of the Roomba poopocalypse. Illustration: Jesse Newton

It turns out that this isnt an isolated incident.

Its happened to neuroscientist Becca (she didnt want her full name published) between five and 10 times over the past two years.

She and her husband bought the Roomba to tackle the hair shed by their four cats Aretha, Bert, Merry and Pippin. It does an amazing job, she said.

That is, until theres a stray cat turd. Sometimes this happens when one of the cats simply misses the litter box, while at other times its down to the cat having a little dangling one that falls off somewhere in the apartment.

Its awful. The poop gets stuck in these tiny treads in the wheels, gets sucked inside and in all the brushes, Becca explained. Thats on top of the poop smeared all over the house.

Most of the time the mess is concentrated to a small area, something that Becca credits to a feature that leads the Roomba to go over an area repeatedly if it thinks it has detected a particularly dirty spot.

A couple of weeks ago we had this big asterisk on the floor because the Roomba was going in zigzags trying to get the spot, she said.

Roomba. Photograph: Katherine Anne Rose for the Observer

Los Angeles marine biologist Jonathan Williams endured a similar trauma. Its happened three times in the past few months, ever since his family moved to a house with their pug, Alice.

The first time it happened he came back from work to find tread-marks of caked-in poop all over the house.

The next two times were much worse. Its almost like [Alice the pug] deliberately left it right in front of its path at the start of the cycle.

The last time it happened, Alice had been out in the morning and evacuated her bowels, lulling Williams and his wife into a false sense of security. We thought it was safe and we could run it, but it seems like she was storing some up for us.

Quite honestly, we see this a lot, said a spokesman from iRobot, the company that makes the Roomba.

We generally tell people to try not to schedule your vacuum if you know you have dogs that may create such a mess. With animals anything can happen.

Are there any plans to introduce any poop detection technology to the product? Our engineers are always trying to figure out ways to help people with their problems, and weve known this is an issue people deal with.

He suggests that it might be possible to introduce a specific sensor or feces-specific image recognition.

I cant say we have the solution yet but its certainly something our engineers are aware of.

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You’re Probably Making 1 Of These 3 Major Money Mistakes Without Even Knowing

Money is tricky, and some would argueour generation is the worst at it.

A new report came out recentlyby the FINRA Investor Education Foundation that broke down American’s money habits now, compared with data from 2009 and 2012. Here’s the good news: We’re getting betterat handling debt and saving up for short-term goals. Here’s the bad news: There arethe three major money mistakes people are still making.

I was definitely making these mistakes until I read an eye-opening book about personal finance called “I Will Teach You To Be Rich,” by Ramit Sethi. I know the title sounds cheesy, but before reading that one book, I didn’t even know what a credit score was.

So yeah, my finances are inmuch better shape now. One book, people. That’s it.

But if you’re too lazy to read a whole book about how to handle your money, here are the three biggest mistakes people are still making withtheir hard earned cash.

Try to avoid these, OK?

1. We’re still screwing up with credit cards.

According to the report, 32 percent of consumers are still just paying the minimum amount due on credit cards and carrying a balance. This is bad. Ideally, you’d carry no balance on your credit card month to month and pay it off every time, on time.

And if you have credit card debt, you should always be working toward paying it down. The longer you carry a balance, the worse your credit score will be. And if your credit score is bad, you’re basically fucked.

It’s not all bad, though. The numbers in terms of credit card payments have improved all around since 2009, meaning we’ve gotten better with money. But, don’t pat yourself on the back just yet.

2. We’re not living below our means.

If you want to save money, you need to spend less than you make. Apparently, 18 percent of consumers spendmore than they bring home. Not good.You’re always going to feel broke if you overspend, people.

In 2009, 35 percent of consumers spent about the same as much as they made. This percentage is now at 38 percent. Also, now 40 percent are spending less than they make compared to 42 percent in 2009.

So, these numbers show we aren’t doing well when it comes to watching our spending and living below our means. Maybe it’s time for some of us to take a good hard look at our credit card statements instead of guessing how much we spend per month.

3. We’re ignoring the fact retirement is a thing to save up for.

According to the survey, only 39 percent of consumers crunched the numbers on how much they needed to save for retirement. And that part is fairly easy. You can do it from your bed. It really doesn’t take long compared to how much time it takes to actually save up the money for retirement.

OK, this really makes me upset.Isn’t saving up money for when we stop working part of the reason we grind it out for so many years? I don’t understand why people are still not thinking ahead. If you already have a 401(k), IRA or some kind of retirement fund now, you’re definitely going to thank yourself in the future. If you don’t, set one up ASAP.

You’ll need (and want) way more than you think, so start saving early, people. The good news is, according to the survey, consumers are getting better at saving for short-term goals like vacations, emergency funds and college. But what about after all that when you’re too old for vacations?

So, there you have it. If you’re making just one or even all three of these major mistakes, there are things you can do today to improve your money situation.

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Tylko bags $3.1M to size up a bespoke furniture business

Bespokeshelves cansell themselves if you make it easy enough for buyers to be designers. Thats the conviction driving Warsaw-based Tylko, which just closed a3 million (~$3.1 million) Series A round aiming to step up its app-based custom flat-pack furniture business with additional marketing muscle, while alsoworking to expand therange ofproducts it sells online.

Investors in the new round are Paua Ventures, G+J Digital Ventures, Experior Venture Fund and Daftcode Ventures. The startuphas been sellingcustomizable hardwood shelving units as its first focus since September 2015 but doing so online and viamobile apps, rather than from bricks-and-mortar showrooms.

Its alsousing augmented reality to help grease the sales pipe. Users of the Tylko iOS app can push a button toview their custom shelving unit design in situ via their mobile device, thanks to AR although youfirst need to print an A4 context card, and put the paper on the floor where youreintending the shelves to sit.But so long as you have a printer handy, its a quick and painless way to get help visualizinghow furniture looks in a room arguably the biggest blocker to most furniture sales.

Tylko has paid special attention toseeking to simplify thecustomization process, usinga series of sliders to let users quickly tweak and applydimensions, styles and finishes. The designprocess is similarlystreamlined via an algorithmic process called parametric design that allows design changesto be rules-based and thus user-controlled by a slider, too.

So while users cant literally spec out exact interiorshelving dimensions of a Tylko shelf, they canadapt a design by eye (and finger) to get something thats more to their liking. Switching between different shelving designs is quick and easy just a case of a few taps and sliding a slideruntil you like the look of the result.

Parametric design permits the designer to create a controlled environment in which the customer can move with the use of the intuitive UI (such as sliders), explainsco-founder Mikoaj Molenda. The result is a product created by the designer yet adapted to the specific needs of the customer.

We realized that there was no easy way to get the perfect piece of furniture. Everything was either standardized or too complicated, so we decided to think in a customer-centric way so we could fulfill everyones needs, addsco-founder Jacek Majewski.

We know that shopping for furniture in the real world is a nightmare for many people. Its time consuming to fight the bustle of a busy shop to find the ideal piece amongst standardized products, and the product is bought, they often discover different hidden logistical costs or even worse have to transport it themselves. The assembly process is often tedious and at the end of the day, the product is very low quality.


This was our inspiration: to create a high-quality solution in which our clients needs are met from start to finish from personalizing the perfect-fit shelf, to easy in-home assembly.

The team tells TechCrunch theyve sold products to around 3,000 customers at this point, with Europe their main market so far, and within thatGerman-speaking countries and the U.K. though they havealso shipped further afield, including to Japan, Israel, Australia and the U.S.

Theyre using a fully automated manufacturing process, relying on CNC machines that receive production files straight from the customer, and machine parks based in Poland.

While shelving units are thefirst focus, they also offercustom tables with different dimensions, leg designs and colors. Theyre also intending to develop additional products with the new financing a well-placed source tells us storage will continue to bea focus, withcustom cupboards one likely future product, for example.

Tylko usesslow-growth wood from Finlands birch forests as thebase hardwood for its furniture. Customers have to wait between three and six weeks for delivery after theyve submitted an order, so thisdoes not match the immediacy of an IKEA DIY pick-up job, though Tylkosays theyre hoping to reducewait times soon. Shipping is also free within Europe.

Per-unit pricing is also generally muchhigher than flat-pack giant IKEAs products so,while a basicsix-shelf IKEA Billy bookcase cancost just40, aTylko hardwood grid-styled equivalent might cost as much as 440 but its chasing higher margins bytargeting more of a designer furniture buyer, given theuse of hardwood and ability for customizable dimensions, as well aslook and feel.

Tylko describesits customers as typically design and tech savvy, withan average age range of 25 to 35 andevidently plenty of disposable income to spend on minimal-looking furniture. Buyers cant change an order after its submitted, but the startupdoes offera 100-day return policy for any bespoke shelving regrets.

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Bank’s unusual support for its LGBTQ employee will give you hope

Being gay can be especially tough in some conservative Asian cultures, but supportive workplaces can make all the difference.

This video posted by HSBC Bank in Taiwan tells the story of one of its employees, Jennifer. In an interview segment in the video, she reveals that her parents don’t acknowledge her relationship with her partner, and refused to attend their wedding.

So the bank’s country CEO, John Li, walked her down the aisle on her big day.

The touching video also talks about Jennifer’s 11-year relationship with her partner, Sam.

Image: hsbc now/youtube

“My parents are strongly against it,” says Jennifer. “Whenever my father sees Sam, he will push her out and tell her to get lost.”

Jennifer adds that her biggest worry about coming out was that it would affect her work. “I was concerned that it would stop clients banking with [us]. So I considered it very carefully,” she says.

However, her colleagues have come out in full support of her.


“CEO John was willing to walk me down the aisle, [he even] told us not to be nervous and to walk slowly,” she says.

Taiwan has not legalised same-sex marriages, so the couple’s wedding is ceremonial. But Jennifer notes that she hopes her story will encourage others LGBTQ couples facing the same pressures.

“This wedding is really for the LGBTQ community,” says Jennifer. “We hope our actions will encourage people and create respect among different communities.”

This is not the first time HSBC has made a big show of support for LGBTQ couples.

Earlier last year, it unveiled a pair of rainbow lions in front of its Hong Kong office as part of its “Celebrate Pride, Celebrate Unity” campaign.

“This campaign demonstrates our commitment to achieving a truly open and diverse working environment,” said HSBC Group general Kevin Martin in a statement.

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