While airfare prices may be rising from the lows of last year, Internet technologies are giving customers the power to find even more elusive travel deals. For example, last week, Yapta.com, a Web site that tracks prices and predicts future fares, partnered with travel search provider Kayak.com to give users more price information while booking. The service is similar to Farecast – a former independent service now partnered with Microsoft’s Bing travel search – that predicts with varying confidence levels whether airfares will rise, fall, or remain the same.
For travelers, having some peek into the future is a welcome tool in what many see as the opaque world of airline pricing. After all, few things can be more frustrating than booking a ticket, only to have the same itinerary drop by $100 the following week. The real issue, however, is whether these services will actually make it more difficult to find deals.
In any market, there are usually some participants with insider information that give them some sort of better information about when to purchase. The same is true in travel industry – there are travel nerds, airline employees, and other gurus. The key however is that these groups constitute a concentrated population with a better shot at systematically finding deals.
Farecast and Yapta essentially extend some of this insider knowledge to a larger group. If the efficient markets hypothesis holds, then fares will reflect all available information, and arbitrage opportunities will be eliminated. In this case, arbitrage comes from waiting until the lowest price is manifested. Thus, if all (or a large number) of travellers know when prices will rise, the deals will quickly disappear.
If sufficiently few individuals use fare predictors, if the predictors are wrong, or if the efficient markets hypothesis does not hold, however, then deals are likely to still be around and available. In this case, users of prediction programs will have a significant advantage over other buyers of airline tickets.
Of course, these services are now being partnered with larger travel search engines, giving price information to more people. It will be interesting to see what the actual effects will be – namely, whether airfares begin to smooth out over time and whether deals become more scarce. Of course, more information available to more people promotes market efficiency, but I’m sure that’s not much consolation to the insiders whose advantage may be slipping away.
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