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Working in Airline Loyalty, Part 2: Airline Economics
Working in Airline Loyalty
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7 Comments
Working in Airline Loyalty
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Cash prices of tickets increase as the date of departure nears. Distressed inventory seats are released for award redemption. However if the royalty program employs dynamic pricing which correlates to the cash price, wouldn’t that disincentivise loyalty program consumers from redeeming award seats, hence defeating the purpose?
To what extent do factors such as different fare buckets, seasons, oil prices, labour cost, airline’s fixed cost at different airports affect pricing? What other factors are at play?
Can you write an article about cost of operating an airline, using an airport, establishing a hub and why airlines have such low profit margins except Emirates?
Love the insights. Thank you.
Incomplete goal alignment between departments in a company explains so much. It makes the seemingly irrational, suddenly rational.
I had a recent bad experience with The HomeService Club in Toronto that tested
my loyalty. They had no empathy, no desire to engender loyalty and frankly no common sense. I have strived to figure out why they would disappoint me and let me post negative reviews about their poor business model over a mere $150 when my contracts with them were in the thousands
of dollars! But maybe some organizations don’t understand the relationship aspect of business and the importance of loyalty.
I’m here for the discussion to follow.
Thanks for another great insight into “the other side” of our hobby.
Question: How does AC’s new dynamic pricing of reward flight affect distressed inventory? As the cost of close in cash fares rise, so will the cost of reward redemptions, no? Or would the rate of increase for reward redemptions be less than the rate of increase for cash fares?
Would you see a possibility where it would be cheaper to buy points at the last minute (at the full 3 cents per point) and redeem them than to buy cash fares?
Hi Leon, excellent question and while I don’t profess to know exactly what Air Canada has up their sleeve, it’s a good assumption that on Air Canada only flights, redemption pricing will largely be aligned with cash fares. That being said, one of the great benefits of a dynamic pricing model is that the airline has complete flexibility in how they want to price a flight.
For example, if there is massive availability on a business route, say Vancouver to Toronto, AC might not want to discount the cash fare close in because they want to capture all the margin coming in from business travellers that book at the last minute. Instead of discounting the cash fare, they could put on an Aeroplan Points seat sale to fill the plane. Usually these kinds of things are manual interventions to the algorithms that are normally automatically pricing the number of Aeroplan points per flight.
To answer you final question, there certainly could be instances that paying 3¢/Aeroplan point for a redemption might just come in cheaper than the cash fare itself – it’s all going to depend on Air Canada’s philosophy on last minute Aeroplan redemptions.
Jon, COVID has certainly thrown a wrench into traditional airline economics and I think you have a valid point around business travel being reduced, but as someone that has worked in Business Development for many years, I can honestly say that you really do get a lot more done in person than via a Teams or Skype call.
In my organization, we are starting to see people begin to travel for business meetings and while it may never get back to the same levels as prior to COVID, I think there are still likely to be business people travelling for work. You may not see people flying across large distances for a one hour meeting but you will likely see a more consolidated approach where you book multiple meetings over a week and justify the cost of business travel that way.
How Revenue Management approaches this new world is still to be seen but I would have to guess that the likelihood of discounted seats close-in is highly unlikely. What you might see is more award seats being released as a result of reduced demand from business travellers, which is great for this community.
It’s a complicated question, especially when you consider how an airline might want to create scarcity to up the desire for people to experience their product – look at Swiss and Air France First Class and the many hoops you need to jump through to book those seats as award seats. There is the potential that some airlines are just willing to have their planes fly empty to create that desire/demand … but ultimately, it’s not a smart long term play.
Ed Simms had mentioned in a recent interview that business travel will, for the near few years at least, will not recover. The need for a 5 hour flight accross several time zones for a one hour meeting and back would be impractical. So do you think this will affect the revenue management approach if these seat sales go down? ( not that West Jet has a ton of premium seats)