Did your great fare suddenly disappear?

Dynamic pricing was probably the culprit

You probably know what Melanie Frazier felt like when she recently tried to book a flight from Portland, Maine, to Atlanta.

She found a $257 fare — not a bad deal — but by the time she got around to booking the ticket online a few hours later, the price had risen to $441. Undeterred, she set up a fare alert through Google, and a week later, sure enough, the fare plunged to $246.

Frazier, a retired federal employee who lives in Portland, went through all the steps required to purchase the ticket. “But when I hit the purchase button, a screen came up that read, ‘FARE CHANGE — Looks like there’s high demand for this flight.’” The new price: $402. Broadly speaking, Frazier experienced something called dynamic pricing. It’s where the fare or rate fluctuates, often from minute to minute, aided by sophisticated computer programs that predict demand. Chances are, it has happened to you, too.

Companies use dynamic pricing to maximize their profits, charging the most during times of peak demand and lowering rates when no one wants to travel. While the process seems wrong to consumers such as Frazier, industry insiders say that it’s not only necessary but fair.

One of them is Peter Vlitas is Travel Leaders Group’s senior vice-president of airline relations. His company has $21 billion in annual sales volume, including airline sales. “The airline benefits by offering a higher price point for the consumer who is willing to pay for it,” he says. “The consumer who wants a lower price will choose certain flight times or book earlier.”

So why does dynamic pricing feel so wrong?

“When the fare they see today is not there tomorrow, the level of stress it creates in the purchase path leaves the practice less than desirable in the minds of consumers and booking agents alike,” admits Mike von Foerster, chief executive of RightRez, a firm specializing in travel technology and automation.

In other words, dynamic pricing is great for airline passengers and hotel guests when they win, but when they lose, the entire industry looks bad.

Helen Prochilo, who runs Promal Vacations, a full-service travel agency in Long Beach, New York, has learned to work around the system. When she includes a price quote, she prominently mentions the date and warns that the rates could “change at any time” until booked and airfare is paid in full.

Still, her clients are often caught off guard by the price swings. Just recently, she found a flight for a client from New York to West Palm Beach, Florida. The client called back the next day to confirm.

“By then, the price had gone up $200,” she remembers.

The traveller grudgingly agreed to the new price. “As I was with her on the phone booking the tickets, the price went up another $25.”

Even then, the customer booked the airline tickets. And, in a sense, that’s how dynamic pricing is supposed to work. The algorithms that predict demand correctly forecast that Prochilo’s client would buy the tickets at a higher price — and she did. But in another sense, the entire episode looks like a bait-and-switch exercise.

It’s only going to get worse, experts say. The programs that set these prices, often referred to as yield-management systems, are becoming more sophisticated. They can now use personal data to predict when you’re likely to buy and how much you’ll pay.

“Consumers should become resigned to the idea that we are increasingly being targeted for our individual consumption,” says David Pyke, a professor of operations at the University of San Diego School of Business.

Companies are using smart- phones and geo-targeting, or creating predictions based on your location, to squeeze more money from their customers.

And if you think airfares are absurd, wait until you see what’s next, he warns.

“If you just bought hotdogs, and it’s the Fourth of July, a retailer may determine it’s time to raise the price on hotdog buns,” he says.

To win this game, customers have to act counterintuitively. For example, instead of booking a hotel room for the Labour Day holiday, look to the week after that, when demand is lower. And leverage technology, such as Google Flights, which allows you to track prices. Or a site like Kayak or an app like Hopper to determine the best time to book.

Using apps and sites, and a good travel agent, can help you keep up with these computer programs that set prices. But in the end, the only way to beat the system may be to do what it doesn’t expect.