Correction.

On page 142 of the Airfares and Ticketing handbook we describe the correct procedure for calculating a Circle Trip Minimum fare. On page 145, fig 3.38 and activity 3.14; page 147, exercise 2 (answer on page 267) we show incorrect examples as the CTM’s in these examples and exercises were not based on the fare from point of origin. We apologise for this error.

Pricing Unit Concept (PUC)

Late in 2000, IATA introduced a concept that had been mooted for some years--the Pricing Unit Concept (PUC). This is a subject that is dealt with in Fares and Ticketing II (which is now an elective subject), but for those of you who are interested, herewith a brief explanation:

As you have learned in Fares & Ticketing I, when calculating a fare for a normal journey the fare is based on the number of miles that the passenger travels. For example, if a passenger is travelling from Brisbane to London the fare in NUC is 2,932.18 and the passenger is allowed to travel a maximum of 13,356 miles for that fare. The Brisbane to London through fare of NUC2,932.18 must never be undercut, that is, the journey must never cost less than 2932.18. In some cases however the applicable through fare for a journey is increased because of mileage surcharges or higher intermediate points etc. In this case using the pricing unit concept, you can try and find ways of reducing the fare and working out the cheapest possible fare for your customer.

Example of how PUC works:

Itinerary: Brisbane, Singapore, Bangkok, Kuala Lumpur.

The normal calculation for this itinerary would be as follows:

TPM / From/To / Fare Calc. / RTE / BNEKUL
BNE / SII / SITI
3818 / SIN / 15M / GI / EH
897 / BKK / BNEBKK / FARE / 1310.61
748 / KUL / 1841.75 / MPM / 4831
TPM / 5463
TPM-DED / -
TPM-ADJ / -
SUR / 15M
HIP / BNEBKK
HIF / 1601.53
C.FARE / 1841.75
TOTAL NUC / 1841.75

This fare has a mileage surcharge of 15% as well as a HIP. In order to get a cheaper fare for our customer we can, using PUC, break the fare into a variety of sectors bearing in mind, that no matter what combination we come up with we cannot undercut the BNEKUL through fare of 1310.61. Set out below are two examples of how this fare can be divided into sectors in order to get a cheaper fare:

Example 1.

TPM / From/To / Fare Calc. / In this option we have used sector fares between Brisbane and Singapore, Singapore and Bangkok and finally Bangkok and Kuala Lumpur. The combination of these sector fares gives us a fare lower than the standard calculation (1841.75) but does not undercut the BNE-KUL fare of 1310.61.
BNE
SIN / 1248.27
BKK / 380.48
KUL / 148.96
TOTAL NUC / 1777.71

Example 2.

TPM / From/To / Fare Calc. / In this option, we have used a through fare from Brisbane to Bangkok (the journey fits in on mileage) and a sector fare from Bangkok to Kuala Lumpur. Once again the fare arrived at is lower than the standard calculation (1841.75) and does not undercut the BNE-KUL through fare. As this is the cheapest of the calculations – we will apply this fare to our customer’s journey saving them NUC91.26 or AUD123.00.
BNE / M
SIN / 1601.53
BKK / 148.96
KUL
TOTAL NUC / 1750.49

The secrets of “Pro-ration” revealed!

Following is some additional information for those students who are curious enough to want to know how airlines determine how to disburse the fare.

When airlines ‘share’ an airfare, they need to determine who gets what portion of that fare. The process involved is known as ‘pro-ration’.

Sector / Airline / Looking at this itinerary, we see that the first flown sector is between Brisbane and Singapore on Qantas Airways. In this instance, a Qantas ticket will be issued (as they are the first carrier flown). Qantas receives payment for the entire journey from BSP. Because there are other airlines involved in this journey, Qantas must now calculate how much each airline gets.
BNE
SIN / QF
HKG / SQ
DEL / CX
FRA / LH
LON / LH

Set out below is an example of a pro-ration calculation.

  • In column 1 we note the sectors that have been flown.
  • In column 2 we show the airlines which carry the passenger over that sector.
  • In column 3 we then need to look up the fare, in NUC, for each individual sector. In this example, we have looked up the fare between Brisbane and Singapore; NUC1248.27, then the fare between Singapore and Hong Kong; NUC647.42, and so on. At the bottom of the itinerary we then add up the total. In this example the total of the sector fares for the journey comes to NUC3929.30.
  • In column 4 we must find the percentage that the sector fare represents of the total. In this example the BNE-SIN sector fare of 1248.27 represents 31.77% of the total fare, NUC3929.30. We find this percentage by dividing the sector fare by the total fare.
  • In column 5 we show the actual fare paid by the passenger, according to their ticket. In this example, the passenger purchased a one way, normal economy through fare from Brisbane to London valued at NUC2932.18.
  • In column 6 we apply the percentage (from column 4) to our through fare. In this example, for the BNE-SIN sector we take the economy through fare of NUC2932.18 and divide it by 31.77% giving QF NUC1255.16 for that portion of the journey.
  • In column 7 we show the IATA rate of exchange for the country of the airline carrying the passenger over that sector, and;
  • In column 8 we apply that ROE to the NUC level for that sector to determine the local currency amount that the carrier is entitled to.

1 / 2 / 3 / 4 / 5 / 6 / 7 / 8
Sector / Airline / Sector Fare / % of total / Through fare / % of total / IATA ROE / Local currency
BNE
SIN / QF / 1248.27 / 31.77% / 931.50 / 1.34746 / AUD1255.16
HKG / SQ / 647.42 / 16.48% / 483.13 / 1.50596 / SGD727.57
DEL / CX / 556.44 / 14.16% / 415.23 / 7.74556 / HKD3216.23
FRA / LH / 1084.04 / 27.59% / 808.95 / 1.84926 / DEM1495.96
LON / LH / 393.13 / 10.00% / 293.37 / 1.84926 / DEM542.51
Totals in NUC / 3929.3 / 100% / 2932.18 / 2932.18

Please note: the above calculations were done in MS Excel. Using a calculator produces slightly different results and it proves difficult to arrive at 100%.