An uptick in pricing volatility

Travel managers have had a lot to think about due to the disruptions in business travel in the wake of COVID-19. Refunds, vouchers and cancellations have been, and continue to be a headache for most corporate travel programs. Airfare prices are now starting to cause additional cost control issues as essential travel resumes.

If you’ve already begun to notice wildly fluctuating airfare prices, know that this is not a figment of your imagination. With airlines scrambling to make sense of the mess and trying to operate with so many unknowns, airfare prices are more unpredictable than ever — a fact backed by Oversee’s own data.
As we’ll explore in more detail, we’ve indexed a huge uptick in pricing instability — not just for prices in themselves, but for the frequency in which prices change. And that’s not good for travel managers with no technology for capturing the best rates. As you know, when you can’t predict or control how much travel will cost, there’s no way to rein in those potentially ballooning expenses and get the most value for your money.

The factors at play in volatility for airfare prices

Airfare prices have always depended on a complex dance between supply and demand, with the habits of both business travelers and leisure travelers providing a framework for setting and adjusting airfare prices – one that’s in constant flux. But data from years past, on which airline’s revenue management software once depended so heavily, can no longer help airlines strategize how to fill seats and remain profitable since 2020’s travel disruptions are such an anomaly.

Simply put, airlines don’t know how to set airfare prices anymore. Not only are they left without a way to accurately predict supply and demand, but they’re also under tremendous pressure to recover financial losses while operating under restrictive and ever-changing government legislation.
This makes for a large-scale mess for everyone involved. Commercial airlines are hanging on by a thread while companies that depend on business travel are potentially paying inflated airfare prices during an, especially austere time.

An unprecedented situation

 

So just how chaotic are the airfare prices currently? Using billions of data points on millions of fares tracked by our Faresaver engine, we’ve created two indexes that show how out of hand the situation has gotten, especially in the last three months.
Our Airfare Price Volatility Index captures the relative volatility of airfare prices starting at the beginning of the year. Each month is assigned a number that reflects the volatility of airfare prices during that time period, with zero representing static pricing.

For example, in June of this year, volatility was set at 48.7, but by July, it had skyrocketed to 122.6, a whopping 152% increase. Airfare prices in August were even more volatile, with that month indexed at 148.4, by far the highest number for the year. The recent jump is no surprise given the uncertainties around the pandemic, and it stands to reason that volatility will continue to climb or remain high for the foreseeable future.
But it’s not just the prices themselves that are out of whack these days. We’ve also analyzed the rate at which airfare prices are changing, and the findings add another layer to the story. Oversee’s Airfare Price Change Index demonstrates various increases and drops since the beginning of the year, with the most dramatic upswing of airfare price change indexed in August (195), as compared to July (120.3) and June (73.36).

As our data clearly shows, not only are airfare prices themselves irregular, they’re being adjusted more often than ever.

Airline volatility index in 2020:

How volatility can affect your operations

 

So what does all of this mean for travel managers, and why is volatility so detrimental? When airfare prices widely deviate from the norm and change on a dime, it’s much more likely that your travelers are booking during times when prices are high, spending more on business travel than they need to.
Without technology like our Faresaver platform that’s always keeping score of changing airfare prices and automatically rebooking when a better price is found, getting the lowest price is nothing more than a guessing game. There’s no way to predict on your own when prices will shoot up or when they’ll drop.

Before COVID-19, our clients typically enjoyed up to 4% savings on their travel spend, but Aviel Siman-Tov, CEO and cofounder at Oversee, predicts that the Fairsaver platform will be especially helpful combating these times of airfare price instability, allowing anywhere from 6 to 8 per cent savings in coming months. For some companies, that can add up to quite a lot of money.

While airfare price volatility can certainly take your travel program for a ride, companies that are prepared with technology that tracks and secures the best prices will be better prepared to weather this storm.

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