School holiday pricing: fair market economics or exploiting families who cannot choose?

Every Australian family with school-aged children knows the pattern.

Look at an airfare, hotel room, holiday apartment or resort outside the school holidays and the price can appear reasonable. Search for essentially the same trip during the school holidays and the price can be dramatically higher.

The aircraft has not necessarily become more expensive to operate. The hotel room has not suddenly acquired another bedroom. The holiday apartment is the same apartment.

What has changed is demand — and, critically, the customer's ability to choose when to travel.

School holiday pricing is one of the clearest examples of dynamic pricing in the Australian economy. It is generally legal. It also raises an uncomfortable ethical question.

At what point does responding to demand become exploiting a customer's lack of alternatives?

Why prices rise

The conventional economic explanation is straightforward.

Airlines have a finite number of seats. Hotels have a finite number of rooms. Holiday parks have a finite number of cabins and campsites.

When demand increases while supply remains relatively fixed, prices rise.

Businesses also have a legitimate commercial reason to manage demand throughout the year. A coastal resort that is full during Christmas and half-empty during winter cannot necessarily price every night as though occupancy were constant.

Peak-period revenue may help support the business during quieter months.

Airlines take the principle considerably further through sophisticated revenue-management systems. Fares can change according to demand, remaining capacity, booking patterns, time before departure and numerous other variables.

Accommodation businesses increasingly use similar revenue-management techniques.

None of this is inherently improper.

But school holidays introduce another element.

Demand does not increase merely because millions of Australians simultaneously decide that January looks particularly attractive.

For families with school-aged children, the calendar itself creates the demand.

Who does it?

Variable and peak-period pricing is widespread across the travel industry.

Airlines are perhaps the most visible practitioners, but the principle extends through hotels, resorts, serviced apartments, holiday rentals, holiday parks, car hire businesses, cruise operators and other tourism businesses.

Individual businesses employ different pricing systems, so it would be misleading to suggest every operator increases prices by the same amount or uses precisely the same method.

Nevertheless, peak and off-peak pricing has become an established feature of tourism.

Consumers have largely become accustomed to it.

That does not necessarily mean they consider it fair.

Is it legal in Australia?

Generally, yes.

Australian businesses are ordinarily free to determine their own prices, including raising prices when demand increases. The Australian Competition and Consumer Commission explicitly says that businesses generally may set, raise and lower their prices and that prices considered excessively high — sometimes described as “price gouging” — are not, merely because they are high, necessarily illegal.

The ACCC also makes an important point specifically about aviation: it does not regulate airfares, although it monitors prices, costs and profits in the domestic airline industry.

There are nevertheless legal boundaries.

Businesses cannot mislead consumers about prices or the reasons for price changes. They must comply with rules concerning the display of total prices, including unavoidable or pre-selected charges. Misleading “drip pricing”, where an attractive initial price progressively grows as unavoidable charges emerge during the booking process, can breach Australian Consumer Law.

That distinction matters.

Charging $600 for something that was $300 the previous week is not automatically unlawful. Advertising it as $300 and making the consumer discover that it actually costs $600 can be another matter entirely.

There are also competition laws. Businesses must set their prices independently. Competitors agreeing among themselves to fix prices is illegal cartel conduct.

Australian regulators have previously taken significant action over travel pricing practices. Jetstar and Virgin Australia were ordered to pay penalties in 2017 over misleading drip-pricing practices, while the Federal Court subsequently ordered hotel comparison service Trivago to pay $44.7 million for misleading representations concerning hotel room rates.

The law therefore regulates how prices are represented and how businesses compete much more readily than it determines what constitutes an acceptable holiday price.

Legal does not necessarily answer the ethical question

This is where the discussion becomes more interesting.

There is a reasonable commercial argument for peak pricing.

A hotel room on a Tuesday in February is economically different from the same hotel room on New Year's Eve because demand for the two nights is radically different.

Airline seats are perishable inventory. Once an aircraft departs, an empty seat can never subsequently be sold.

Businesses therefore price scarce capacity according to what the market will bear.

But there is an equally reasonable consumer argument.

Families with children attending school do not possess the same freedom to move their holidays to a cheaper week that many other travellers possess.

Governments establish school terms. Parents are expected to send their children to school. Employers frequently have several employees competing for leave during the same periods.

The family then enters a travel market that knows exactly when millions of those consumers will become available.

That creates an unusual market.

The customer technically retains a choice.

In practical terms, the choice may be severely constrained.

Is it exploitation?

That depends upon what we mean by exploitation.

In the economic sense, higher school-holiday prices can simply be described as scarcity pricing. More people want a limited quantity of something, so its market price increases.

In the ethical sense, the issue is less easily dismissed.

A family may be told that if it does not like the price, it can travel at another time.

But for many families, that is precisely what they cannot realistically do.

The education system concentrates family demand into predetermined periods. The travel industry then prices that concentrated demand.

There is nothing secret about the arrangement. Indeed, it has become so entrenched that many Australians probably regard it as an unavoidable feature of having children.

But familiarity should not prevent examination.

There is a difference between charging more because providing a service genuinely costs more during a particular period and charging more because the supplier knows the customer has fewer alternatives.

Both can be legal.

Whether both are equally fair is a different question.

There is another side to the equation

It would also be unfair to characterise every school-holiday price increase as profiteering.

Peak periods can impose genuine additional costs.

Accommodation providers may require additional staff, cleaning, security and facilities. Holiday parks may run additional activities. Labour costs can rise on weekends and public holidays. Tourism businesses operating in strongly seasonal destinations may earn a disproportionate amount of their annual revenue during relatively short peak periods.

More importantly, higher prices perform an economic function.

If prices remained permanently low while demand vastly exceeded capacity, the result would not necessarily be cheap holidays for everyone.

It could simply mean everything sold out faster.

Price is one mechanism by which scarce capacity is allocated.

That economic reality does not settle the fairness argument, but it belongs in it.

What can families actually do?

The usual consumer advice is to book early, compare prices, travel outside peak periods and remain flexible.

All are sensible.

None completely addresses the problem.

A parent cannot move the Queensland Christmas holidays to November because November airfares are cheaper.

There are nevertheless ways to reduce exposure.

Families can compare departures from nearby airports, consider travelling at the edges of school-holiday periods, investigate destinations experiencing different seasonal demand, compare package prices with booking components separately, use refundable bookings where worthwhile and watch the total checkout price rather than the attractive headline figure.

It can also be worth reversing the usual travel search.

Instead of deciding upon a destination and then finding the cheapest way of getting there, determine where flights and accommodation remain reasonably priced during the available dates and choose the destination accordingly.

That gives some bargaining power back to the consumer.

The problem with "shop somewhere else"

The conventional defence of high prices is competition.

If one business charges too much, consumers can take their money elsewhere.

The ACCC itself notes that consumers faced with prices they regard as too high can consider alternative suppliers or, where possible, decide not to purchase.

The important words are “where possible.”

During school holidays, competing airlines may all be experiencing strong demand.

Competing hotels may all be approaching capacity.

Holiday parks across an entire destination may be full.

Changing supplier therefore does not necessarily escape the underlying price pressure because the constraint exists across the market.

And telling a family simply not to take a holiday is technically an alternative, but hardly an answer to the underlying question.

An entrenched system with no obvious exit

There is no simple villain in school-holiday pricing.

Governments determine school calendars for sound administrative and educational reasons.

Families organise their lives around those calendars.

Employers organise leave around their businesses.

Tourism operators attempt to maximise returns from assets that may be intensely busy for several weeks and considerably quieter at other times.

Airlines attempt to extract the greatest possible revenue from a seat before it disappears forever when the aircraft takes off.

Each participant behaves rationally.

Collectively, however, they create a system in which families are channelled towards the same travel periods and then charged a premium for arriving there.

That is why the argument cannot be resolved merely by saying that school-holiday pricing is legal.

It generally is.

Nor can every increase fairly be dismissed as price gouging.

The more important question is whether a market remains genuinely competitive from the consumer's perspective when the consumer has considerable choice over who to buy from but very little choice over when to buy.

The Times View

School-holiday pricing demonstrates an uncomfortable distinction between a free market and a free consumer.

Airlines and accommodation providers have legitimate reasons to vary prices according to demand. Businesses are entitled to earn profits, and scarce capacity inevitably becomes more valuable when millions of people want it simultaneously.

But families should also be entitled to question a system that charges them most precisely when their freedom to travel at another time is smallest.

The market says the customer can always refuse the price.

For Australian families tied to the school calendar, the reality is more complicated.

They can change the airline. They can change the hotel. They can change the destination. They can abandon the holiday altogether.

The one thing they often cannot change is the week in which they are free to go.

And that constraint is precisely what makes school-holiday pricing both commercially rational and ethically uncomfortable.