Airlines increasingly using dynamic pricing for everything from luggage to legroom

Open this photo in gallery:

Canadians accustomed to adjusting travel dates and booking times to land the cheapest airfares may want to start doing the same with their baggage fees as well, as a growing number of carriers have adopted flexible pricing for luggage based on factors such as demand, flight routes and time of purchase.

While flexible rates for bags and other add-on services could result in lower costs for some passengers, they are likely to drive up the overall cost of flying at peak travel times, according to some aviation experts. The changes also make it harder for consumers to gauge how much their total flight cost might be before committing to a booking.

Among the Canadian carriers surveyed by The Globe and Mail, only Porter Airlines said it is currently using dynamic pricing to set rates for bags and seat selection, an approach the company said it adopted in 2019. U.S. carrier Spirit Airlines has also disclosed that it uses dynamic pricing for ancillary services. The strategy, which airlines already use widely to set airfares, allows companies to charge flexible rates based on users’ browsing behaviour and market demand.

I booked a cheap flight on a discount carrier. But could I dodge the upselling?

Airlines’ dynamic pricing may be causing Canadians to pay higher fares than their neighbours

A more common pricing strategy among Canadian airlines involves rates that change within set boundaries based on variables such as flight routes and dates – what aviation expert John Gradek calls “variable prices.” That pricing strategy doesn’t require a complex algorithm to gauge in real time a passenger’s willingness to pay or the collective demand for a particular flight segment. But the use of a range of prices, instead of a single rate, is also aimed at maximizing revenue for airlines, said Mr. Gradek, who is the co-ordinator of the aviation management program at McGill University.

“The airlines are trying to outsmart the buyer at every opportunity,” he said.

The switch to more complex price ranges for bag fees appears to be recent, at least for some Canadian carriers.

Budget carrier Lynx Air advises on its website that new rates apply for bookings made from Feb. 14. For example, a carry-on bag on its short-haul flights (less than 1,000 kilometres) is now subject to a fee of $59.99 to $66.49 when the booking or check-in are done online. By comparison, for bookings made before that date, the airline lists a single $39.99 charge for a carry-on allowance purchased online.

Lynx did not respond to questions about what determines its new price ranges.

Juliana Ramirez, who is responsible for ancillary revenue generation, digital experience and distribution at no-frills carrier Flair Airlines, did not directly respond to a question about when the company adopted its price ranges for baggage fees. But she did say the airline conducted “testing” specifically related to those fees in the second half of last year.

On the Flair website, baggage fees vary by as much as $40. Ms. Ramirez confirmed that such price variations are based on travel dates and routes.

“You would see, for example, a different price point in a Vancouver-Toronto trip for Christmas as opposed to a Vancouver-Edmonton flight for September,” she said. However, passengers always get the lowest fees if they pay for their bags when they book their flights, she added.

With Swoop, which doesn’t apply dynamic pricing to bag fees, rates depend on the departure date and flight destination, in addition to differences in applicable taxes, according to spokesperson Julia Brunet.

With the adoption of variable bag fees, Canada’s ultra-low-cost carriers are catching up to their peers in Europe, where budget airlines have been around for much longer, Mr. Gradek said.

But it’s not just low-cost carriers showing increasingly complex prices for bags. On its website, WestJet warns customers that baggage fees for a first and second checked bag increase by $10 within 24 hours of departure. The airline, which doesn’t use dynamic pricing for any ancillary products, changed its checked baggage fee policy in April, 2022, spokesperson Julia Kaiser said via e-mail.

Air Transat does not display baggage fee ranges, but company spokesperson Andréan Gagné said prices vary based on flight destinations, in addition to factors such as service class and whether the purchase occurs through online booking or at the airport. Passengers can estimate their luggage rates using an online tool on the airline’s website, Ms. Gagné said via e-mail.

Air Canada, which revised some of its checked baggage policies last August, has a similar baggage-fee calculator. Both airlines said they don’t use dynamic pricing for bag fees at the moment.

The more complex fee structures make it more difficult for passengers to compare flight costs beyond base fares, said Tom Bacon, an airline industry consultant based in Denver. And a more widespread adoption of dynamic pricing would make cost comparisons even more complicated, he said.

While passengers may be less than thrilled about algorithm-driven airline fees, for the industry the promise of extending dynamic pricing beyond base fares is enticing. Revgauge, a startup that provides airlines with a dynamic pricing platform for add-on services, says its partner carriers have seen revenue from ancillaries rise between 8 per cent and 16 per cent on average.

Chief executive officer Roopa Mathur says there are benefits for consumers as well. While dynamic pricing may result in higher rates during peak travel times, it can also yield deeper discounts during shoulder and off seasons, she said. And if an airline’s priority is to gain market share, a dynamic algorithm will produce highly competitive rates, she added.

Still, whether they’re using variable or dynamic prices, airlines must ensure they’re clearly showing fees and overall costs to consumers, Mr. Bacon said.

The issue, he said, is “the difficulty we all have in communicating complex fees.”