The Truth About International Airline Tickets

It has been awhile that I am trying to get a word out about the international airfare. What is negotiated fares? Why our fares are not found on major websites like Expedia? I run on this article that I find interesting by Edward Habrouck :

“Unlike domestic fares in the USA, international airfares remain regulated, and the official fares published by the airlines give little indication of the actual prices at which agents sell tickets on those airlines. It’s as much a waste of time to consult Travelocity, Expedia or any other Web site for airfares (especially for more complex, long-haul, or multi-stop itineraries) as it is to call a travel agent (rather than checking airline fares yourself on the Web) for travel within North America.

The differences between domestic and international airfares are largely due to the differences in how they are, or are not, regulated. Unlike deregulated domestic USA airfares, international airfares are regulated both by international treaties and by an international airline price-fixing cartel, the International Air Transportation Association (IATA).

It’s worth noting that every USA-based airline operating scheduled international passenger flights has voluntarily joined IATA. USA airlines’ invocations of “open markets”, “free trade”, and “open skies” can be dismissed as completely hypocritical and self-serving drivel until such time as they exercise their right to withdraw from IATA, as any of them could at any time. USA airlines are allowed to participate in IATA “traffic conferences” only because of a special exemption granted them from USA anti-trust laws which normally forbid such industry-wide collusion on prices.

Why do airlines join IATA? What is the reason for any cartel? It exists to keep prices, and airlines’ profits, artificially high.

International airfares are set by international agreement and regulated by the airline cartel, IATA. Most international airlines are closely related to, if not directly owned by, their national governments. Most governments in turn have an interest in protecting the profits of their national airline, and the IATA fares are therefore set artificially high.

As a condition of membership in IATA, airlines agree (voluntarily, remember) to sell tickets only at IATA-approved prices. IATA rules officially prohibit discounting, and in some countries these rules are actually enforced — one reason some countries have no local ticket discounters (although tickets originating in those countries can often be bought in other countries, if you know where to look).

Airlines like the cartel because it raises the prices paid by price-insensitive business travelers. But it’s not the whole story. If airlines sold tickets only at IATA fares, they would have too many empty seats that might be salable at less-than-official prices.

The revenue-maximization problem for the airlines is how to get some money for seats that can’t be filled at official fares, without destroying the benefits of the cartel by allowing people who would be willing to pay full fare to get away with paying any less.

The system the airlines have developed for preserving the cartel while actually selling discounted tickets at less than official fares relies on the intermediary of the travel agency, and the loophole that neither IATA nor international airfare treaties restricts how much commission an airline can pay an agent for selling a ticket. So the airline can pay a large commission to a travel agent, then turn its back and avert its eyes while the travel agent rebates some portion of the commission to the traveler.

All sales of international tickets on scheduled airlines at less than official fares are made through travel agencies, not directly by the airlines, and ultimately depend on rebating of commissions by travel agents to customers. This is how travel agencies can and do, quite legally, offer lower prices for international tickets than the airlines themselves.

Airlines know what is happening, of course, but they have to pretend they don’t. In order to maintain plausible deniability and keep their hands clean with IATA, airlines must maintain the fiction that all tickets are sold at official fares. Since airlines cannot admit that they are even aware of discounting, airlines cannot admit to any knowledge of agents’ actual discounted selling prices. Strange but true: by the nature of the system of discounting, airlines do not usually know themselves, and couldn’t admit to knowing if they did, by which agents or at what prices their tickets are most cheaply sold.

All official fares are “published” either in hardcopy in the Official Airline Guides (OAG) or the Air Tariff, or electronically in the computerized reservation systems (CRS’s) such as Sabre, Apollo, Amadeus, Worldspan, and Gabriel. By the very nature of the IATA price-fixing system, airlines cannot admit any knowledge of the fact that agents are selling tickets for less than the official fares. So only published fares are shown in any CRS. Since all the major CRS’s are owned by the airlines, no CRS contains any publicly accessible information on agents’ actual discounted selling prices.

The glut of official international fare information available through gateways to CRS’s such as, Travelocity,  Expedia, etc. is deceptively comprehensive-seeming and impressive but fundamentally useless in finding discounted prices. If you want to pay less than the official international fare, you have to buy your ticket from an agent who gives discounts, not from an airline directly or from a source (such as a CRS Web site) that is limited to published fares. “

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