Question

When using dynamic pricing, what specific variable accounts for the rate at which seats are being sold within a specific fare class to trigger an upward price adjustment?

Accepted Answer

The specific variable that accounts for the rate at which seats are being sold is called the booking velocity, also known as the booking pace. Booking velocity is defined as the number of seats sold within a specific fare class over a defined period of time. Revenue management systems track this velocity against a pre-determined forecast or a capacity curve, which is a mathematical model showing the ideal rate at which inventory should be sold to maximize revenue by the time of departure. When the actual booking velocity exceeds the forecasted rate, it indicates that demand is higher than originally anticipated. The system identifies this variance and triggers an upward price adjustment by closing the current lower-priced fare class and opening a higher-priced one. This process ensures that remaining inventory is protected for later-booking passengers who are typically willing to pay a premium, thereby optimizing the total revenue generated from the finite number of seats available.

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When using dynamic pricing, what specific variable accounts for the rate at which seats are being sold within a specific fare class to trigger an upward price adjustment?