Trying to Predict Airfares When The Unpredictable Happens

With airfares fluctuating frequently, knowing when to buy and when to wait for a better deal to come along can be tricky. Airfare prediction apps such as Google Flights and Hopper aim to take the guesswork out of price forecasting so travelers can time their booking and buy tickets when they are the cheapest. But can such tools accurately predict when airfares will soar and when they will drop, especially when the unpredictable happens? And can these price forecasting tools be useful to business travelers, whose needs are much different than those flying for leisure?

To find out more about these applications and air pricing, we spoke to one of American Express Global Business Travel’s (GBT’s) top air specialists: Jeremy Quek, principal of air practice line lead with Global Business Consulting (GBC), the advisory arm of GBT.

One of the biggest disadvantages: It’s based on historical data

From Quek’s understanding, many of the price predictor app algorithms heavily rely on historical flight data to make their predictions of cheap flights and ticket prices. And that is one of their biggest weaknesses. When making a prediction based on historical data, you look at what happened in the past and react to that. The forecasting formulas and models these tools employ do not take into account unpredictable events that influence demand and become less applicable in a climate of low demand and uncertainty.

“Right now, historical data is out the window,” Quek said. “For air pricing predictions, it’s a crystal ball that is extremely foggy right now.”

Making the crystal ball even foggier, airlines are having their own pricing challenges. Because airlines’ algorithms for anticipating demand are also built on historical travel patterns and booking behaviors, carriers are struggling to determine where demand is and how to optimize the price.

“They’re looking for any nuggets of information they can get, whether that’s asking travel management companies like us about what we’re seeing and hearing in the marketplace, asking corporate clients when they think business travel will come back and where they’ll be going, or looking at search data when people go to sites like KAYAK,” he said.

Because of lower demand in 2020, airlines have had to make some tough decisions about where to deploy their assets, which also can complicate airfare predictions.

Quek said many airline revenue management analysts decided to keep lower prices available to try to scoop up as much of the low demand as possible. However, because many carriers also have had to reduce their capacity and footprint, there may be less competition in some areas. This can translate into airfare increases for some routes and fewer nonstop flights, especially to secondary and tertiary destinations.

Also impacting prices: a shift in top routes

In trying to chase demand, Quek said airlines also have had to figure out which routes they should prioritize. Historically, big cities were top destinations, especially for business travelers, but that trend did not stick in 2020 as many corporate offices moved, at least temporarily, to a work-from-home model. As a result, airlines had to pivot, scaling back on what have been traditionally popular cities and focusing on other destinations that align with shifting preferences and patterns.

For instance, Quek illustrates how American Airlines anticipated that people would want to travel to outdoor destinations during the summer of 2020, so it developed a clear strategy for deploying more aircraft to these locations, sometimes in places where the carrier had never operated before. It was a bet that paid off, Quek said, and soon other carriers followed suit.

Prediction apps aren’t suitable for business travel

Even if they could accurately predict airfares in the current climate, Quek has never been a fan of using price forecasting apps for corporate travel. Since business travelers are in a “must go” situation and have to be in a specific location at a specific time, they usually do not have the flexibility of waiting and watching to see when they can take advantage of price drops (you can use our airfare re-shopping solution to do that). But he also noted that these tools are becoming less relevant today because of changing travel program priorities.

“For many organizations, price is not the No. 1 factor right now,” he said, noting that many are shifting their focus from travel savings to traveler health and safety.

As companies review travel policies with employee health, safety, and well-being in mind, they may make changes to air guidelines that raise the cost of a trip. For example, Quek said, “Some corporates with a more stringent policy that previously required travelers to consider a connecting journey when it can save money now may decide nonstop is better to minimize risk exposure.”

Or some companies may become more lenient about business class travel and flying with a nonpreferred airline if it helps make their travelers feel more at ease and is seen as an investment in the organization’s most valuable assets – its people.

To get hands-on help adapting your air program, speak with one of GBC consultants, who can create a plan tailored to your unique needs and circumstances.