Fare trigger points about to be tested

You never hear about them on the consumer side of the fence, but marketers love to talk about price "trigger points".

Unlike so much waffle that emanates from the marketing industry, there’s quite a bit to the theory and practice of how customer demand can be massaged.

It’s why prices that end in "99" – the last stop before 100 – have an enduring appeal, whether it’s in a supermarket, a whitegoods store or a travel shop.

The theory is, for example, that a $99 fare will sell a lot more than five per cent more than a $104 fare – and I’ve no doubt that, if the theory was rubbish, it wouldn’t be used.

Well, travel price trigger points are about to be tested in a big way as the price of getting overseas begins to rise.

It’s now popularly thought that the next waypoint for the Australian dollar will be around 85 US cents – hopefully, the economists say, on its way back down to where it should be at about 70 US cents.

That’s where it was before the twin drivers of the mining boom and government debt forced the little Aussie battler into the stratosphere above parity with the Greenback.

From the point of view of Australia’s world travellers, of whom there are now around eight million a year, the news is all bad as it not only costs more to get anywhere, but the shopping at the end of the journey becomes more expensive as well.

Tens of thousands of Australians have been lapping up the opportunity to combine a holiday with some serious retail therapy in the USA, Europe and Asia.

The strong dollar has meant that in the US, for example, purchases of just about everything from clothes to golf clubs is around half price compared with buying them at home.

Now the pressure is on the exporters of Australians – predominantly the airlines – to raise prices Down Under in line with the relative value of their home currencies.

One of the most obvious examples is the price of a ticket to Europe. A major reason why it has stayed below $2000 return among the quality carriers has been the strength of the Australian dollar.

Remember back five to 10 years ago and the price had breached $2000 and was heading for $3000 – even more during periods of high demand.

Because there are now dozens of airlines pitching for business from Australian travellers between Australia and Europe, competition has been the main restraint on fares.

But foreign airlines in particular will now be wanting to maintain their pricing margins which means increasing fares – which will admittedly be a heck of a juggling act when both the European and Australia’s economies are sluggish.

It will be necessary to shop a little harder for the specials, which have been as low as $1300 to Europe in the past year as a result of aggressive new competition from carriers like Guangzhou’s China Southern.

In the other direction, it has still been possible to get fares around $1200 return to Los Angeles in the past few months, with the market still absorbing the extra competition from the likes of Delta and Virgin Australia, which have taken on the Qantas-United duopoly and the competition from Air New Zealand.

The US carriers in particular will now feel pressure to creep their rates up to maintain their margins.

In any case, however, the old assumptions about travel getting dearer as the date of travel nears don’t necessarily hold true.

An investigation aired in the UK by the BBC last Thursday night, titled Flights And Fights: Inside The Low Cost Airlines, showed that in modern airline "yield management", quoted prices don’t gradually increase according to the days and weeks of advance purchase, but actually jump around depending sales of so-called fare "buckets".

"While in general the later buckets have higher fares, to sell all the tickets in a particular bucket, prices may be cut to boost sales and move on to the next, higher priced bucket," the BBC reported.

"And if there's low demand on a flight, the system may never reach the higher priced buckets."

While the program was devoted to examining the systems at short-haul, low-cost airlines, the same marketing and revenue management challenges exist at all airlines, including those flying full-service long-haul.

As I have said repeatedly, air travel is one of the least profitable and most competitive businesses in the world.

And, having enjoyed unbroken years of having airlines begging us for our business, we’re again headed for a more difficult environment which will require a lot more picking and choosing to find the best value for money.

Do you have a personal price point beyond which you won’t go for specific destinations in Asia, Europe, America or elsewhere? Have changing economic circumstances forced you to put off international travel? Have you swapped an international holiday for a domestic one to save money?