Welcome to this second panel looking at consumer prices in the fields of food, flights and fun. Thank you very much indeed to Sophie Dekkers from easyJet and Rob Griggs from Airlines UK for joining us today.

We were established 30 years ago, and our model is basically to fill all our aircraft. We have always used dynamic pricing, and we carry 100 million passengers a year. Our first flight was from Luton to Glasgow, and we charged £29.99 back then—and we advertised it as the same as the price of a pair of Levi’s. You can still fly Luton to Glasgow today for £29.99—I do not think you can say the same for the Levi’s, unfortunately—with air passenger duty included in that now. The way it work is that we offer the ticket price. If you book earlier, it is generally the cheapest time to book. As demand grows, prices typically go up closer to departure. That is the typical way that dynamic pricing works. It is the typically the same for all aviation, and it has been for the last 40 years. There are additional charges for booking a seat or a bag as you go through the booking flow, as that is an optional extra. About 40% of people—in fact, 39% of people in the last year—choose not to add any extras, and therefore the price they see at the very beginning when they search for their flight is the price they pay at the checkout. As an airline, prices typically increase the most when there is the most demand, more so than for the rest of the year. Overall, our margin last year, including all the ancillaries and in-flight retail, was £6.08 per passenger, so it is a very low-margin industry. It is very competitive. There are 89 short-haul airlines operating in Europe and the UK, so everything is highly competitive and people have a choice.

We absolutely use algorithms because of the size and scale of our operation and the number of flights we have on sale at any one time. The algorithms work on how much we historically sold those flights for and how many seats were booked at how many days to go. That is the way the algorithms work. They do not track individuals, and they do not look at cookie data or cache any data at all. We do not price differently depending on when you looked at the flight, when you booked a flight or what you booked previously. It is all based on taking that individual flight and how much it has sold given the days to go in advance of the journey, rather than being based on the customer. Let us take the Luton to Glasgow example. Let us say that we put it on sale 365 days out. Something like Luton to Glasgow will have quite a late booking profile. Typically, domestics book within the last 14 days, so you would probably see quite low prices and then the prices will go up closer to departure. You would see the same pattern if you looked at it last year, the year before or the year before that. The algorithms work on the historical booking profile, not on the individuals who are booking.

There are variations.

As Sophie said, some form of variable or dynamic pricing has been around for a number of decades. It has gone hand in hand with the liberalisation of aviation, which has brought significant benefits to consumers. Traditionally, you would have a number of predetermined static price points, usually starting lower. They would get higher as you go towards the flight. Essentially, you might have a number of buckets of tickets. Once one bucket of tickets has been sold, you would move to a higher price point. As far as we understand, a number of airlines still operate that historical model, which is perhaps less dynamic, with a lesser or greater degree of human intervention to see whether a route is underperforming or overperforming, for example. As Sophie said, fundamentally, while there might be changes, all airlines will price differently and have their own strategies. Essentially, aviation is a low-margin, high-volume industry, so filling the aircraft and making sure that the algorithms are dynamically doing that is, broadly, what happens across the piece.

No.

That appears to be a popular misconception about how dynamic pricing works. Fundamentally, there are a number of variables but the algorithms are looking at how well those tickets are performing, how much they are being sold for and at what rate. They are not looking at private information. I read online that someone said, “Someone was served a higher-priced ticket because they were browsing via the latest iPhone.” That does not happen, categorically. I can speak for UK airlines, our members, not for the whole global airline community, but, as far as we are aware, it is a myth. It does not actually happen.

We were talking about this.

There is a balance to be struck. There are two left because there are two left. As I said, you have these, essentially, buckets of tickets. People will say, “I went on and looked”, and then, a few hours later, the price might have changed. That may well have changed because there were only a couple of tickets. By letting people know there are a couple of tickets, arguably, that is transparency to help the consumer make a decision. You can look at it the other way and say, “That is encouraging people to buy,” but it is a balance. As I say, the price points are there. Once they are sold, the prices may move. That is the nature of dynamic pricing.

Sophie, I am a huge fan of the model. I use budget airlines all the time and commuted for 10 years between Scotland and Ireland using you and some of your rivals. Why do you pile on so many extra charges? Why are your prices sky high, as well as your aircraft? You talked there about how 40% of people do not pay these extras, but that means 60% of people do.

For us, the whole model and the reason we established the low-cost airline is to give people choice. That is why we do not put the extras on for everybody. If we put the extras on for everyone, it would raise and inflate the prices for everyone. Thirty-nine percent of people do not choose and do not want to take those extras. We do not feel that we should be forcing people to take the extras. We are giving them choice. Some choose to book a seat. Some choose to take a bag. Some choose to take both, but we are offering choice. The basis of our low-cost model is that you can buy a ticket and have an under-the-seat bag included, and you will have an allocated seat when you board or when you check in online. We actually open check-in 30 days in advance, so people have the certainty of knowing where they are sitting. We offer all that. In fact, we were the first low-cost airline to introduce allocated seating. I think we can all remember the days before that was introduced. It is about giving people choice. We do not want to force everyone to take the same things if that is not what they want to take.

The under-seat bag causes no end of difficulties, does it not, because it is so small? There are arguments at the gate about whether a person’s bag is going to fit under the seat. That is a reputational issue for you, is it not? The budget airline industry generally is notorious for these difficulties. One thing is clarity about these charges. What are you doing? You deny that this is drip charging. You talked about the booking flow. You say that people come across these charges quite early in the booking flow. What are you doing to make it much clearer to the consumer what they are actually going to pay at the end of the day?

I will start with a clarification. It is not drip pricing, because drip pricing is where, after starting the booking, you find out when you check out that lots of unintended surcharges have been added. That has been eradicated from the industry, and certainly from a UK perspective. You cannot add a fuel surcharge, an admin charge or anything through the booking process. The price that you see on the ticket at the beginning is the price you pay when you check out at the end. As an industry, we do not have drip pricing, unlike other industries. In terms of giving people clarity, we do a lot of testing to make sure it is really straightforward and simple for people, so they know what they are entitled to. Cabin bags are a constraint on all aircraft, as not everyone can put a full-size cabin bag into the overhead locker. Before we introduced the ability to manage the number of cabin bags on board in that way, we were offloading 7 million bags a year, which was causing big issues for on-time performance. We know that the biggest driver of customer satisfaction is on-time performance. People want to get there on time. We therefor introduced it to manage that, so people had certainty that they were not going to have an unwanted wait for their bag on the baggage belt. That is part of the reason for it, and we make it really clear.

Can I press you on the clarity part? You are adamant that people can see a price at the start and, if they stick to their guns and do not add any extras, they will pay that price at the end. Along the way, there are extras that they might or might not opt for. To be clear, are you absolutely certain of that?

Yes, exactly, 100%. We do a lot of user testing to make the booking flow really accessible for people, and really clear what they are entitled to and what they are choosing at each step, and then on the confirmation, it is really clear. What we have now introduced on the booking flow is that, along the top of the website, as you go through the booking journey, you can see the next step, what is coming up and how far you are in that journey, so there is no mysterious element about the booking journey. We are trying to make it really simple and transparent for people to pick the things they want and not pay for things they do not want.

Rob, what does good practice look like across the industry in this sphere? There is a reputational issue here with the idea that somehow people hit the final button, confirm, and the price is suddenly two, three, four or five times what they thought it was going to be.

It is worth emphasising that, as Sophie said, we were engaged with the DMCC Act last year around drip pricing. Aviation was being talked about as something where this might happen. We were categorically saying that this really does not happen. The price you see is the price you pay. You cannot add extra points at the end. If you see a price, you can achieve that price. We did that when I travelled abroad a couple of weeks ago. For UK airlines, it generally is the case that you will see a price, you might go on to the next page and then you will see what the range of options are and what the added extras could be. As I say, that is tailored to enable people to travel as cheaply as possible if they do not have the extra need, so that not everyone is paying for a service they do not ultimately need. It is absolutely right that it needs to be transparent. The CAA does consumer satisfaction surveys every few months. Overall, around 85% of people are satisfied with their last flight within the last 12 months; 5% are dissatisfied. For the booking process, from comparing flights and options, it is actually higher than that—around 89%.

You look specifically at that, to the point from easyJet that people are very concerned about on-time performance. You are talking about the booking experience.

Yes, from our perspective, the system is working well and is transparent. You can compare prices and see what you are getting.

Many of us in this place are football fans, and we are looking forward to following our teams around Europe in the new season. People in the west midlands will be looking forward to following Villa. My family are going to be following Crystal Palace. Often, when it comes to following your football team abroad, you suddenly find, on the day that the match and the location is announced, and your team have qualified for that fixture, the prices of travel to that location go up. I am thinking, for example, about what happened to Liverpool and Spurs fans in 2019, when suddenly the prices to get to Madrid went from maybe 50 quid on a low-cost airline to £750 or £1,000. What have you learned from that experience? Was it not just taking advantage of football fans who did not have any other choice but to follow their team?

This is the challenge where you have only two or three flights going to a really peak event. That demand pushes the system up, because you have so many people coming to book in a very short space of time. To your point, Madrid flights would typically be £50 because you normally have a booking curve that we can predict based on historical data. When you have a football match, it affects the system because the system says, “We suddenly have all this demand and a very small number of flights.”

Sophie, walk us through, blow by blow, what happens between a game being confirmed in a place and a ticket hitting 750 quid. Hour by hour, how does the price reach that point?

The system will react when—

What does that mean, “The system will react”?

The system will—

Which system are we talking about?

Our revenue management system, the pricing system, will react when it sees a surge in demand. It equally reacts when it sees a depression that means we do not book the flow we would expect. Typically, our system gets higher closer to departure. About 60% of the time, the system puts the prices up; 40% of the time the system actually brings the prices down because we are not seeing the demand. If something comes in and suddenly a lot of people visit the website and are booking—back to Rob’s earlier point—we have so many seats sitting in each price bracket. If lots of people come into the system at the same time, the revenue management system will react to that and increase the prices.

The cheap buckets, as it were, may sell out very quickly and the speed with which they are selling has an impact on the last buckets, as it were, the price of which soars. Is that roughly the mechanics?

Yes, exactly, the speed at which they are booking will make the system react more quickly, because it is seeing that demand. Within hours of a match being drawn, you see all the seats going. The system will react, and that is where the prices increase. It is worth emphasising that our average price last year was £73, so these are real one-offs when they happen.

These are the ones we are worried about.

We actually have a cap on the price, and a maximum that a price can go up to. We are happy to share that with the Committee. It is not something we disclose publicly, but we have a cap. In terms of the number of times we hit that cap, of the 100 million passengers we carried last year, one in a million would hit that cap. It is very rare that prices hit the peak, and it would be the last two or three seats that hit those sorts of prices. It is because you have so few seats in such a compressed and concentrated travel period.

In the industry more broadly, what has your learning been about this? Is the practice of having a cap widespread across the industry? Is that how other operators work?

As a trade body, we do not get into the commercials of what airlines do individually. It is not our job. My understanding from talking to our airlines is that this dynamic is at play, so it is similar. Our overarching view is that, as Sophie said, these are rare events in an industry that has generally brought costs down a lot over the last few decades, and where, overall, airlines’ profit margins are around 4%. We want airlines to make a profit. We want them to be successful. They are competing in a hugely competitive market against other airlines, other airports and other destinations. The system, as a whole, is working well and offering good value, but airlines will have their own way of managing those peaky events.

I want to come back to this idea of the cap, which was left hanging in the air. Earlier this month, you were caught selling flights to the Europa League final in Bilbao for £1,800. Clearly, the cap is not £1,800, because that definitely happened. I had a look last night at how much it would be to charter a private jet. Interestingly, it looks like it is about £15,000 an hour. Bilbao is a two-hour flight from London, so we can all go. If there are 100 of us, it would be about £300 to fly one way, or £600 return, which is not bad for a private jet. I just wondered whether I missed the memo when you became an exclusive luxury airline. How is that justifiable?

The £1,800 would not reflect our price cap. It is well below that. It would not be for a single person one way for that fare. I am not sure of that exact example, but I know that our price cap is significantly less than that.

The price that we clocked on the easyJet website was £1,823.

That would not be for a single person one way. It might have been a return journey, but not a single person one way.

It is pretty punchy, even for a return.

As I say, one in a million people are paying those sorts of charges, and we carry 100 million people a year. Our average profit is £6.08 per passenger, and our average fares are £73. These are very ad hoc. That does not reflect the price cap that we have. We can confirm that and put it in writing, but I can tell you that it is absolutely not the price cap.

You also speak about the system as though it has a mind of its own that you cannot control—a bit like Skynet. I just wondered whether there is any review of it, given that it is clearly creating some quite astronomical prices.

We have a team of trading managers who look at the system. They are constantly monitoring and optimising it. As I say, 60% of the time the system puts the prices up, and 40% of the time it puts them down. These are very few flights that we are talking about here, versus the 1,827 that we operate daily, pretty much—that was yesterday’s number. We are talking about a handful of flights a year that have these sorts of prices.

Morally, there is a limit to prices. Even if the market could withstand a price that is, let us say, even higher than the number for that flight, as a firm, do you think it would be wrong to charge what you could get away with in the market?

We have the price cap for that reason. I would also say that we are in a highly competitive market. On 99% of our flights, we are competing with another airline on the same route, because we operate all the popular, big routes. We are not the price setter in the market, and the customer has choice. That is the key thing to remember about airlines. As I say, 89 airlines operate short haul in Europe and the UK, and I would say that the majority of our routes have another option. If we started charging astronomical prices, customers would choose to fly with somebody else. We have the price cap for a reason.

I just want to make sure that I am clear about your argument. Your argument is, in part, that the market will fix this, but you went on to say that you have a price cap because, I assume, as a business you have decided that there should be limits on the extremes of prices.

Yes.

Both things are true?

Both things are true. It is very competitive, but we believe that there should be a cap. Q83            Dr Huq: Hi, both. You said that dissatisfaction rates are relatively low when you have done polling. Can you see why the great British public reacts badly to statements such as the one from easyJet’s CEO, who said that the system could fill a plane in six seconds during peak booking times, and that is completely consistent with demand-led models?

That example would be from when we first go on sale with flights, when there is pent-up demand. People want to book their next summer holiday, and they want to book it early, because they know that, by booking earlier, they will get the best prices. That is when we talk about being able to fill an aircraft in six seconds. Because it has been the same model for us for 30 years, and for the industry for 40 years, people know that, if you book early, you get the best prices. That reference to filling an aircraft in six seconds is normally when, September time, we go on sale for the following summer and you will see a surge because lots of people want to book early to get those best prices. That is what that relates to. Q84            Dr Huq: We have seen polling from Opinium and YouGov, as well as qualitative comments. Fans described this as “shameless greed.” These are the kinds of things that Antonia was talking about. It is just seen as milking fans dry. Some polling that came out in the wake of the Oasis ticket scandal showed that only 10% of consumers are anywhere vaguely positive towards this. Have we been looking at different polling from you?

There are different examples in different industries. I would say that the airline industry is very transparent about pricing, and about when you can get the best prices. We do not see those levels of dissatisfaction within the airline industry in terms of booking. As Rob mentioned, we see good levels of satisfaction in the booking flow. As I say, we are offering flights today for £29.99 for the same route that we operated 30 years ago for £29.99, and there is a lot of tax added to that now that we did not have when we first launched. As an industry and as an airline, we are fighting to keep prices as low as possible by being efficient. Our average fare last year was £73, and that is across all flights and 100 million passengers.

We are slightly running out of time, so maybe I could just wrap up, Sophie, with one last question. Are there the right controls on dynamic pricing in your industry? You have taken a position about, for example, price caps. We might have a discussion about where those price caps sit. Is the industry in the right place on this, or might your competitors need different rules of the game?

There is enough guidance. It is a well-established industry in terms of dynamic pricing. It is not a new thing. It is key that we keep being transparent with customers and offering them choice, and that we do not suddenly start stipulating that everything needs to be included, because then we would be reducing choice. As an industry, they are very well-established pricing mechanics.

Thank you. There are a few things to follow up on, but that has been an incredibly useful introduction to the subject for us. Thank you very much indeed for your time and for your evidence today.