Latest / The CMO Podcast with Fexingo: Marketing Leadership, Budgets, and Executive Strategy / How Airlines Use Dynamic Pricing to Fill Every Seat
Transcript
- Lucas: So Luna, you booked flights for the team offsite last week, right? What did you see when you checked the same route a few days later? Luna: It had gone up by like sixty bucks. Same seats, same time, nothing changed except the date. I was honestly annoyed. Lucas: That's dynamic pricing doing exactly what it's built to do. And it's probably the most sophisticated pricing engine in the world, running under the hood of every airline you've ever flown. So I thought we'd spend today pulling back the curtain on how airlines actually set prices—and why CMOs everywhere, not just in travel, are borrowing their playbook. Luna: Before we dive in—quick honest thing. A handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what funds making this many of these. No ads, no sponsors, just listener support. Lucas: Yeah, and if these marketing conversations have sparked something you've actually used at work, that's the whole point. It keeps it ad-free and independent. But back to the math behind your sixty-buck surprise. Lucas: So airlines don't really have a single price for a seat. They have a fare class, which is a bucket of inventory. The same physical seat might have ten different prices attached to it, depending on when you buy, what flexibility you want, and how strong the demand forecast is. Luna: And it's not just about how many seats are left, right? It's about predicting who's going to buy next. Lucas: Exactly. The revenue management system looks at historical booking curves, competitor pricing, seasonality, even the weather. If a conference in Vegas is filling up fast, the system knows that route will sell out, so it raises prices earlier. Luna: And that's why booking three weeks out is usually cheaper than booking three days out—they're betting on the late business traveler who has to fly. Lucas: Right. The late business traveler has less price sensitivity, so the algorithm prices accordingly. It's not arbitrary. It's a massive optimization problem, and airlines have been solving it for decades. Lucas: Take Ryanair. They're the poster child for a different flavor of this. Their base fares are often shockingly low—like ten euros to fly across Europe—but they make money on add-ons: seat selection, checked bags, priority boarding, even a printed boarding pass. Luna: So they're essentially pricing the flight at zero and monetizing every little thing around it. It's a brilliant marketing hook. Lucas: And it's why they can advertise a price that looks unbeatable, then let the customer build their own fare through the checkout flow. That's dynamic pricing too, just applied to the ancillary basket. Luna: How did airlines get so good at this? I mean, dynamic pricing isn't new, but the precision feels different now. Lucas: The shift really accelerated after the pandemic. In 2023 and 2024, when travel came roaring back, airlines had to re-learn demand patterns from scratch. They leaned on real-time data—search volumes, booking pace, even Google Trends—to adjust prices within hours, not weeks. Lucas: A route that was dead in January could spike in March because of a Taylor Swift tour announcement, and the system would catch that almost immediately. Luna: So it's not just about historical data. It's about sensing what's happening in the world right now. Lucas: Exactly. And that's the part CMOs in other industries are watching closely. The same logic that prices a flight can price a hotel room, a ride-share trip, or even a streaming subscription. Luna: But there's a trust issue here, isn't there? When people find out they paid more than the person next to them, they feel cheated. Lucas: That's the tension. Airlines have trained us to accept price differences because we understand there's some opaque logic to it. But a hotel that raises prices because a convention is in town—that's seen as gouging, even though it's the same basic mechanism. Luna: So what's the difference between surge pricing and dynamic pricing? I always thought they were the same thing. Lucas: Surge pricing is a blunt version—it's about matching demand in the moment. Dynamic pricing is more granular. It's about predicting willingness to pay for each micro-segment, and it factors in customer loyalty, purchase history, even the device you're using. Lucas: Airlines have been doing this for years, but now fintech and retail are catching up. You'll see a price on your app that changes if you've been browsing a product repeatedly. That's not a glitch—it's a signal. Luna: And that's where it gets ethically murky. Using someone's data to charge them more is different from using data to fill a seat that would otherwise fly empty. Lucas: Yeah, and that's the line CMOs have to walk. Dynamic pricing is most defensible when it's transparent and when it's used to match price to value, not to exploit a particular customer's lack of options. Luna: What's a concrete example of a non-airline company doing this well? Lucas: Hotels are probably the closest cousin. Marriott and Hilton have sophisticated revenue management systems that price rooms based on local events, occupancy forecasts, and even the weather forecast for the weekend. A beachfront property in Florida will price rooms higher if the forecast is sunny on a Saturday. Lucas: But they're also experimenting with more personalized pricing for loyalty members. A gold member might see a slightly lower rate than a first-time guest, because the system knows they're more likely to book and less likely to cancel. Luna: So it's not always about charging more—sometimes it's about offering the right price to the right person to maximize total revenue. Lucas: Exactly. And that's the mindset shift for most marketers. We tend to think of a single price as the truth. But dynamic pricing treats price as a variable, like any other marketing lever. Lucas: Streaming services are starting to dabble in this too. A few years ago, there were tests where the same subscription was offered at different price points depending on whether you came from a price-comparison site or directly. That didn't go well publicly, but the underlying idea remains: not all subscribers value the service equally. Luna: And that's where the consumer backlash happens. People are fine with airlines doing it because they've grown up with it, but the same behavior from a brand they trust feels like betrayal. Lucas: Right. So the key for any CMO is to build that trust first. If you're transparent about why prices vary—'this rate reflects high demand, book early for the best price'—people are more willing to accept it. It's when you hide the logic that it feels like price discrimination. Luna: What's the takeaway for a marketer who doesn't work in travel or tech? Can a small business use dynamic pricing? Lucas: Absolutely. You don't need a $10 million revenue management system. You can start with simple time-based pricing: happy hour at a bar, early-bird discounts for a service, surge pricing for your freelance hours. The principle is the same—match price to demand. Lucas: More advanced, you can use your own sales data to identify which segments are more price-sensitive and which aren't. A B2B software company might offer a discount to a startup, but charge a larger enterprise a premium because they have a bigger budget and more complex needs. Luna: And that's not unethical—it's just good segmentation. Lucas: Exactly. The ethics come in when you're using personal data to exploit someone's vulnerability. But using firmographic or behavioral data to price fairly based on value delivered is just smart business. Lucas: One more thing—dynamic pricing is not just about raising prices. It's also about lowering them to fill capacity. Airlines do this all the time with last-minute deals on routes that aren't selling well. It's a two-way street. Luna: So the next time I see a price drop on a flight I was eyeing, I should book it instead of getting annoyed I didn't book earlier. Lucas: Ha, exactly. It's the algorithm telling you that you're in a buyer's market at that moment. Luna: I love that framing—price as a signal, not just a number. Lucas: And that's the real lesson for CMOs: the price you set is a piece of marketing communication. It tells your customer what you think the product is worth, and it tells you what they're willing to pay. When you treat pricing as a dynamic part of your marketing mix, you're not just optimizing revenue—you're having a real-time conversation with your market.