Train and Flight Dynamic Pricing: The Art of Revenue Management and the Elasticity Game

This June, as the semester came to an end, I was preparing to return home. I became obsessed with checking flights, of course. To be honest, the price fluctuations were astounding. A round-trip ticket from Sydney to Shanghai cost roughly AUD 3,500 in early April. It had slowly surpassed 4,000 by the middle of May. And when June arrived? The same flight reached more than 6,000. The same plane, same route, but you might pay almost twice as much depending on when you made your reservation.

I initially believed that airlines were simply acting brazenly. However, it dawned on me that this was, in fact, textbook revenue management. Airlines divide passengers into two main categories: time-sensitive (business travelers or families with school holidays) and price-sensitive (students like me, who will change their plans if fares increase). In order to accommodate the first group, airlines release less expensive seats during the off-season. Peak months like June and December are a treasure trove for the second; prices rise gradually, saving seats for people who "must fly, no matter what."

I've observed the same reasoning at work in train tickets and short-haul airline tickets. Consider inexpensive flights from Sydney to Melbourne, where prices are lowered to entice last-minute buyers if the aircraft isn't selling a week prior to departure. However, the system pushes fares upward as soon as the cabin begins to fill. Trains exhibit comparable trends. Tickets from Sydney to Canberra never go on sale during peak hours because commuters have very little flexibility. But departures on Saturday mornings? There are frequently "two for one" offers, which are obviously targeted at tourists.

In this world, price is a lever. As it squeezes every last dollar out of peak demand, it keeps planes from flying half empty during the off-season. I try to predict the airline's next move in every reservation, making it feel like a chess match.