Diwali holidays travel: Demystifying data-driven pricing strategy of airlines

By Ajay Verma: It's well-known that family travel increases by about 25-30% during Diwali. The reasons vary, including school holidays, the start of the festive season, improved weather in the West, family weddings, or simply a long-standing tradition. The planning for such trips often begins with booking flights.

Over 65% of air travellers complain that prices soar high with every additional click. We need to understand that airlines are not in the charity business and they have deployed very sophisticated models and machine learning algorithms to understand real-time demand and maximise their revenues. Let’s break down the ‘how’ part of it if we have recognised the ‘why’ behind this phenomenon.

Here's the secret: Understanding the data-driven pricing strategy

Airline ticket booking engines are not as straightforward as they may seem. They collect your data across devices, ID, location, sector, type of airline, travel history, number of people travelling, time of travel, your past behaviour data linked to price increase and many more such information is passed in split seconds to the airline.

This data in some cases (using the device ID), then passes through a data enrichment layer to understand your demographic and behaviour data like your income segment, place of residence, your spends history, mobile spending and history etc. which is then processed at the airline's end to create and execute dynamic pricing strategies.

And imagine all this happening in real-time offering the buyer a seamless ticket-purchasing process.

Let’s get deeper and more technical for better understanding

At the core, the airline dynamic pricing works on a demand-supply model. The idea is to sell as many tickets as possible at the highest price the market will bear. Airlines don’t price tickets based on a single factor but instead consider a range of variables such as demand, seat availability, and the time of booking etc. There are a number of seats reserved under different fare classes. As lower-priced seats sell out fast, the next batch of seats is priced higher. This is one of the many reasons why you see a jump in price after checking the same flight a few times.

These fare classes are also dynamic and move up or down automatically depending on factors like demand fluctuations and time of travel.

When demand increases, even from multiple searches, the algorithms increase the prices. An important source of this data is cookies and browser tracking. The website doesn’t just collect data pertaining to your searches on their website but also looks at your browser history. So if one has done travel searches or hotel bookings etc. the chances of presenting higher increased prices. This, however, is either not done or openly accepted by some airlines.

Airlines also rely heavily on predictive engineering. Where seasonal or topical events drive the pricing.

The algorithms understand that the 26th Jan – Republic Day in 2025 is a Sunday hence the demand around that time will be moderate versus if it is on a Monday to Friday.

Alternatively, if there is a topical event that gets announced, the predictive engine assumes a demand expectancy surge and the prices are increased.

This auto decision-making price adjustment is done on models which not only rely on historical data but also continuously keep learning with every passing day.

There are also some rational reasons like fuel price or tax changes that impact pricing, however, there are some irrational factors also built in. Like the leader airline or the challenger airline pricing strategy. It is also seen that if Air India or Indigo increase prices other airlines follow suit.

To sum up, there are hundreds of factors used to determine airline prices, and the rise in prices you see when checking the same flight repeatedly is not just a coincidence. It is one of the many sophisticated data-driven algorithms which are at play.

Below are a few simple hacks, you can only try to outsmart these algorithms and find the best deals for your Diwali holiday travels.

1. Clear your Cookies or historical browsing regularly or use Incognito mode for browsing.
2. Booking early. It is a no-brainer. It is time proven and understood hack, but very effective.
3. Be flexible on dates – let the browser not know the exact date of travel.
4. Avoid searching the same sector, same date, same airline repeatedly. Note, here searching from different devices does not help. The backend system knows your different devices and has the intelligence to stitch them together.
5. Rather than repeatedly checking flight prices, set up email price alerts through websites like Google Flights, Skyscanner, or Kayak.

Some international airlines today have started to project their pricing predictions transparently, which helps travellers to plan themselves. There is a high probability that some Indian airlines will start doing the same soon.

Hopefully, with this information, you will be smarter and it should help in reducing the stress of increasing airline prices this Diwali.

[Author Ajay Verma is the Managing Partner at 0101, and has over 25 years of experience in understanding consumer behaviour and driving insights across categories.]