Pattern library
Airline yield management: dynamic pricing explained, and where else it works
An empty seat is worth nothing once the plane leaves. Airlines learned to sell the same seat at many prices, opening and closing fares as the flight fills, so each seat earns as much as someone will pay for it before it expires.
Why it works
- Capacity that perishes: an unsold seat, room or slot is lost for good.
- Customers who value the same thing differently, and can be told apart by when and how they buy.
- A forecast of demand, updated as bookings arrive, that decides which prices are open.
- Fences between prices (refundability, advance purchase) so high-value buyers cannot simply take the low fare.
When it holds
- Capacity is fixed in the short run and expires.
- Demand varies by time and by customer, and you can see it coming.
Where it breaks
- Customers can see and compare every price, and feel cheated by the spread.
- Capacity is not perishable (software seats), so there is nothing to lose by waiting.
- There is too little data to forecast, so prices move at random.
Where else it works
- Hotels
- Room rates move with occupancy forecasts and the booking date.
- Ride-hailing
- Surge pricing raises fares when demand outruns the drivers nearby.
- Event ticketing
- Ticket prices move with demand as the date approaches.
Where you could try it
- SaaS seat or usage pricing
- Booking products: clinics, venues, classes
- Marketplaces with limited supply