Yesterday I wrote about the chaos at Amsterdam Schiphol International Airport leading KLM to suspend ticket sales this weekend for all AMS departures. Turns out KLM has adopted a “surge pricing” model instead. Flights are not full, but if you want to get on one it is going to cost you.
KLM “Surge Pricing” Marks A Unique Experiment
Surge pricing is the practice of charging more for a product or service during periods when it is in high demand. This often is computed by an algorithm measuring supply versus demand, but it can go beyond that to factor in others issues (here, issues unrelated to flights themselves). In the case of KLM, that includes the meltdown at Schiphol Airport caused by a shortage of security screeners.
How is this different than the dynamic pricing models airlines already use? Isn’t it logical that the lower fare buckets are just sold out? For KLM, we see a slightly different case. Rather than use traditional algorithms to price seats according to supply, KLM has zeroed out all lower fare buckets. As a spokesperson explained, KLM does not want you to fly this weekend from AMS, but if you really need to, it will sell you a pricey ticket. This applies across all routes, regardless of flight load.
And you want to know the interesting thing? Check out fares on Lufthansa. Or British Airways. Or Alitalia. Or SWISS. They have matched! Fares are sky-high right now.
This creates a fascinating experiment this weekend. Airfare is already up, but will people pay exorbitant surge pricing if they want to get on a plane this weekend?
Imagine the implications of KLM (and its competitors) finding out it can double fares…and people will still buy tickets. With a strike threatened, we may see disarray at AMS for weeks to come. Should that be the case, this will give KLM a unique opportunity to test what could be a revolutionary new pricing model–how elastic is consumer demand during this unique period of travel?
KLM’s move to zero out all cheaper fare buckets in an attempt to lessen congestion at AMS is an interesting experiment. Will a “surge pricing” model actually work, or will fares be sufficiently high to turn would-be travelers away? We will soon find out!
Are you buying a pricey ticket from AMS this weekend? What is your limit?
image: Cjh1452000 / Wikimedia Commons