If you’ve ever needed to book a plane or a train at the last minute, you’ll know how expensive that can be.
In the complex and profit-enhancing universe of yield management, travel companies make pricing decisions in a way that allows them to extract the most value from each customer based on their personal characteristics.
This is known as discriminatory pricing, and despite the obnoxious-sounding name, it’s perfectly legal, and economically helps everyone. It means that the people who are willing to pay the most are the people who pay the most, and those who want to pay less are able to pay less, and are used to fill up the empty space to ensure that the operators of the train run as close to full capacity as possible.
The way the train, plane and other companies do this is by setting up a payment structure based on certain rules that allow people to self-select into the category of price that they want, without ever being aware of it. Once you know how this works, and with a little effort, forward planning and creative economic behaviour, you can easily access the best deals.
How does yield-management actually work?
The most obvious mechanism aside from having separate classes for passengers is by forcing the customer to pay for convenience. For example, if you want to travel to Belgium tomorrow on the Thalys from Paris, you’ll have to pay €90 for a one-way economy class ticket. The reason it costs this much is that by purchasing the ticket the day before you go, you’re basically sending a signal that says, “I can’t be bothered to plan ahead, or I have something so important to do in Brussels, that I’m willing to pay over the odds for it”.
I, on the other hand, paid €25 for exactly the same ticket two months ago. That ticket is no longer available to you. By purchasing the ticket almost 11 weeks before the trip, I was sending a different signal. My signal says, “I don’t like to pay very much for my train tickets, so I’m willing to block my schedule three months ahead of time in order to get a better price.”
Yield-management logic says that the train company will never get a better price from me than the €25, so they’ll sell me the ticket at that price, provided they can hold back enough tickets to ensure they can still skim the high-margin cream from the economic pie when the less price sensitive customers come along at the last minute.
Can I beat the system?
Of course you can. I wouldn’t be writing this otherwise.
Yield-management systems work because you can only consume the service you’ve purchased personally. You can’t resell the airline ticket you’ve purchased, and while they’ll tell you that’s for security reasons, it’s really to ensure that you don’t go selling your ticket to someone else, thereby claiming the excess profits the airline wanted to gather for yourself.
Airline tickets are nominative.
Train tickets are not.
Provided your Thalys ticket is not an e-ticket that has already been printed out, you can give it to someone else, and even though it has your name in the top right hand corner, they will be able to use it to board the train in your place. There are a number of websites that allow for this kind of exchange (http://trocdestrains.com, http://kelbillet.com, for example).
There are two ways to take advantage of this. Either you go buy your tickets on these websites (which do not allow people to sell their tickets for more than the original cost of purchasing it), thus running the risk that your chosen itinerary will not be available at the time you want, or you buy your tickets ahead of time.
I recommend the second option. I purchase far more Thalys tickets than I intend to use. I frequently go to Belgium and can’t afford to spend €90 each way when I finally get the dates nailed down, so I buy tickets for weekends months ahead of time in anticipation of a potential need to travel. I then resell the tickets if I have no need for them.
I have never had a problem reselling the tickets. In reality, the only real inconvenience is handling the 10 to 15 emails I receive every time I post a ticket. What’s more, since the person buying the ticket is going to save up to €65, they’re almost always willing to travel to me to pick up the ticket, and all I have to do is hand it to them for cash when the doorbell rings.
Doesn’t this upset the travel companies?
The price discrimination is still working. People who are willing to go to the trouble of buying tickets 11 weeks before the travel date on the off-chance that they’re going to need them, then spend 30 minutes of their time managing the resale of that ticket, are basically sending the same signal as someone who blocks his diary three months ahead. The signal still says, “I would not have bought this ticket from you if I had had to pay €90 for it”. By doing this, we are classifying ourselves as low-margin customers.
By contrast, an executive who needs to shoot off to Brussels to close a deal will buy his ticket that very morning, and when he settles the €210 euros for a last-minute business class seat on the Thalys, he will pay with his corporate American Express card, and his biggest concerns will be getting a seat in the first place and whether he gets air miles on his Amex. He’s ripe for plucking by the travel company, and I’m very grateful to him because since he pays so much, I can get away with paying very little. From my €25 point-of-view, price discrimination rocks, from his €210 point-of-view, last-minute ticket availability is a lifesaver.
The same goes for the person who used the cheaper ticket after buying it from me. Someone willing to spend hours of her time hunting down a second-hand ticket, and then crosses Paris on the metro to come pick it up from some random stranger, is not someone who would have been willing to pay more in the first place.
Everyone’s happy – the Thalys gets to sell more seats and use up its capacity, I get tickets cheap, and some student (it’s usually a student) gets to go see her family in Brussels because I happened to have a spare ticket I didn’t want.
The system actually works… You just have to choose to use it.