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Booking Tips – Understanding how air fares work

July 16, 2010

Booking Tips – Guide to Airfares

To help you make the most of your travel budget it’s useful to understand how air fares work

What is a ‘published fare’, a ‘net fare’ and an ‘IT fare’?

Published Fares

Back in the 80’s the fares charged by airlines were highly regulated by governments and IATA (International Air Transport Association). When an airline wanted to release a new fare to the market, it had to apply to the respective governments for that route to get approval first. IATA administered and monitored ticket sales.

These fares became known as ‘published fares’ because they were at the prices printed in fare leaflets, the ABC guide and publicly distributed to travel agents.

Travel Agents would sell these published fares and were permitted to deduct 9% commission – also regulated by IATA. Discounting was forbidden and there was the threat of an agent losing their IATA licence if caught.

Net Fares

However, on long-haul routes e.g. between London and Sydney, airlines other than British Airways and Qantas (the ‘national carriers’) wanted a piece of the action.

Airlines such as Singapore Airlines, Malaysia Airlines, Thai, Japan Airlines via Tokyo, or Continental via Los Angeles wanted to sell tickets too, and to encourage sales they discounted their fares – unofficially – outside of IATA regulations – to ticketing agents.

This led to the proliferation of ‘consolidators’ (ticketing agents that sell tickets to other travel agents rather than to the public) and discount-travel agents, also known as ‘bucket shops’!

Airlines would do deals with consolidators who would supply travel agents who in turn would supply other travel agents. Eventually airlines did deals with the travel agents directly – although consolidators exist even today.

These fares were known as consolidated fares, or discounted fares and they were distributed as net fares at net prices, with each agent and sub-agent adding a profit margin of £10 to £40 as they passed the booking on.

Published fares and net fares still exist today. The net fares are widely available and sold through consolidators, online travel agents and agency consortiums.

IT Fares

Inclusive Tour (IT) fares are even more secretive than the above fare types. Tour operators are supplied with very low fares which are only to be sold to the public if they are bundled with hotels, car hire etc., so that the actual air-fare content is not revealed. Some agents have been known to sell these tickets outside of a package deal and airlines are continually monitoring and attempting to stamp out this practise.

What use do published fares have today?

There are several reasons for the existence of published fares, even though they are more expensive than the net fares.

–        Airlines can share published fares. Because the prices are not secret, on the higher published fares it is possible to mix airlines. For example, on a London to Frankfurt published return fare of £400 it is possible to fly out with BA and back with Lufthansa, and if the ticket is issued through BA, the airline can pass on the correct proportion of ticket price to  Lufthansa for the return flight. The same applies to “multi-sector” journeys, e.g. London-Madrid-Frankfurt-London, with several airlines who all take a share of the ‘through fare’.

–        Airlines can charge the higher fares in situations where perhaps you couldn’t shop around, for example, at airport ticket desks.

–        Mileage tickets. These are relatively high fares (described as “full economy” or “full business class”) which allow as many stops en-route as required, within a specified MPM (Maximum Permitted Mileage) allowance. So, for example on a London-Istanbul full economy fare of £1100, you could travel a route such as London-Frankfurt-Munich-Belgrade-Istanbul.

– Corporate Deals. The published fare is used against which a percentage discount of between 7% and 40% may be applied if sufficient volume is purchased.

Reductions in Travel Agent Commission

Commission levels to travel agents have been reduced over the years from the standard 9%

Some airlines still give commission to travel agents of ranging between 1% and 5%.
These are only available on published fares

Airlines also offer incentives, ‘overides’ or a ‘sales and marketing agreement’ (SMA).

To earn additional money on ticket sales, travel agents either charge a ‘transaction fee’ to process bookings on your behalf, or mark-up the actual price that they quote for the journey. Typical figures range from £10 – £40.

Generally, online travel agents such as Expedia mark-up the ticket prices of the net fares. Thus you will see slightly different fares if you shop around. Some agents even mark-up the published fares. They may £20 to the online price of Easyjet flights, or the fares ( flight only prices are published fares).

Travel Management Companies (TMCs) prefer to charge a transaction fee for each booking as this provides more clarity to the corporate customer. These transaction fees are usually negotiated according to volume, and vary from £10 to £50 per ticket.

But agents are under pressure to maximise profits so in addition to the above transaction fees, they may mark-up  economy air fares by £20 to £100 or when a business class mark-up opportunity arises, by as much as £1,000 !

Thus it is important to know what type of fare you are being offered and armed with that knowledge, to compare the prices online

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