What's the prediction algorithm behind websites like farecast.com (bing travel)?

Question

I think everything is in the title of the question: What's the prediction algorithm behind farecast.com (bing travel) ?

The website : http://www.bing.com/travel/ originally named http://farecast.com before it was bought buy bing is a website that predicts AirFares to help you purchase tickets when they are the cheapest.

I know farecast algorithm is based on historical prices. They used a huge database of airfare observations to build the predictions.

But like options (in finance call/put), there are formulas to calculate the plane ticket prices, so there must be more than just simple datamining behind their algorithm. (for exemple getting historical datas to find the different parameters in a generic formula for pricing tickets - like finding the implied volatility from historical prices of options.)

Can someone tell me what is the theory behind these kind of prediction? I believe the theory is pretty new since the idea came up in 2003, only 8 years ago.

Hope my question is clear,

Thanks in advance

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EDIT

A very quick edit to answer yi_H comment:

I'm looking for recent papers on forecasting algorithm based on hitorical prices and pricing calculation.

Such algorithm may exist in Financial engineering, and farecast might have used quantitative finance algorithm to predict price of options to help them predict airfares.

if by chance someone knows the algorithm farecast uses, it would be great.

Thanks again

Answer 1

Actually the prices are not based on historic data.

A few years ago I heard a talk from a guy who works for ITA software (who built the system that is used by orbitz and was recently bought by google).

Here are some slides by a founder: http://www.demarcken.org/carl/papers/ITA-software-travel-complexity/img9.html

The airlines maintain a database with the air fares that is propagated to those airfare optimizers. However, the airfare system is overly complicated and it is very hard to find optimal prices.

In the talk, that I heard, the speaker said, they were working with a Canadian airline to get rid of the old database stuff and replace it with something more efficient.