Sometimes airlines can be so stupid. Well, most of the time, according to passengers mystified by what they do and angry that airlines make it so hard when life happens. Why, for instance, would they turn down the chance to keep a passengers’ money and resell their seat at a higher fare?

That is exactly what happened recently to my daughter whose plans changed on a basic economy itinerary. She needed to cancel the outbound portion of her American Airlines flight between Orlando-Melbourne Airport and Philadelphia but wanted to retain the return trip.

“I don’t want a refund,” she told the airline a month before departure. “I just want to make sure you won’t cancel my return flight. That way you know you can resell that outbound seat.” “No,” came American’s quick answer. “Basic economy means no changes and if you don’t take the outbound flight, we’ll cancel the return flight.”

Let’s unpack this. The passenger was not asking for a refund. She was telling the airline it could double dip and resell that seat but she wanted to retain the return flight because she’d already paid for that flight. Why do they care, she asked? Why don’t they want to make more money? This makes no sense. The answer is American clearly doesn’t but a lot of other airlines do.

Of course, she was right but since when do airline fares make sense? It would be interesting to find out how often this occurs. We know 20% of business trips are changed, according to TravelPerk but then basic economy is specifically designed to discourage business travelers, the bread and butter traveler who is responsible for airline profitability and subsidizing bare-fare travelers. In fact, the entire booking system is designed to discourage changes no matter what fare you have.

“The truth is, the only fares that are truly flexible cost, on average, 60% more than basic flights,” wrote TravelPerk CEO Avi Meirs in his blog. “Even then, the process for changing plans is still tiresome. Fixing this has been something I’ve wanted to do for our travelers for years.”

 

Airlines Make Millions from Upselling from Basic

American should take a look at what United and others are doing especially since consumer advocates, passengers and Congress are questioning industry anti-consumer strategies to the point where passenger rights bills have been introduced, mirroring actual laws in Europe.

Basic economy has been a huge revenue boost for airlines. A Senate report showed Delta added $20 million in incremental revenues from passengers buying up to avoid basic economy in 2016 while United experienced a $200 million jump in 2017.

In 2018, Delta and American reported a 50% and 63% upsell-from-basic-economy rates, respectively, driving billions in incremental revenue. Delta even allows a carry-on bag for the overhead bin. American ultimately matched and thought it’s upsell rate would decline but now reports its rate is 60%, according to Jay Sorenson, president of IdeaWorks who just completed research for its 2019 Airlines Ancillary Revenue Yearbook done in partnership with CarTrawler. United, he reported, said 60%-70% of passengers buy up to standard economy. Similarly, WestJet reported that buy-up rates are growing from 6% in the first quarter of 2017 to 36% in the fourth quarter of 2018 on its domestic Canada and US transborder markets.

 

A Market Solution to Restrictive Fares

What if there were a market solution to the grinding relationship between airline and passengers? There is and it provides a win-win situation for both airlines and passengers. “This is the next frontier in optimizing revenue for airlines,” said Volantio CEO Azim Borodawala, who makes one of the tech platforms being used. “It means repurchasing tickets from passengers to resell at high margins closer to departure.”

LATAM Revenue Manager Rosario Phillips agrees. “The airline industry is finding new ways to reuse valuable assets and improve overall happiness,” he said recently of his experience with Caravelo, the other platform. “There are clearly specific situations where these business opportunities are missed. Assets sold too early can lead to both denied boarding and empty seats. This technology has increased revenue, reduced denied boarding and compensation paid and increased client happiness, loyalty and our Net Promoter Score. Fifty two percent of our offerings are opened, while 17% accept our offer resulting in a resale factor of six times the value that would have been had without this program. It has enabled us to move five times more passengers year over year from the first half of 2018.”

The technology is gaining wider acceptance especially with truly innovative airlines, according to Caravelo Chief Commercial Officer Jonathan Newman, whose Caravelo Exchange is also used by Comair, TAP Air Portugal and Tigerair Australia. Caravelo Exchange and Volantio’s Yanna platforms are designed to earn airlines even more money by “buying back” seats sold too cheap and selling them closer to departure time at a huge premium – on average five times the price of the original ticket, said Newman of the technology that also automatically re-accommodates passengers on emptier flights.

“Over 15,000 seats are exchanged each month across our airlines and the airlines generate five times the difference in fares from the initial customer to the re-sold seat,” said Caravelo’s Newman. “Customers love it, too – there has been zero negative feedback.”

Caravelo actually has two platforms – Caravelo Exchange for the airlines and Changeyourseat.com for passengers. Changeyourseat.com is only live with Asian carrier Scoot but it allows passengers to alert airlines they are flexible in their travel plans in exchange for a reward or some measure of refundability on the ticket. For airlines, the benefits go beyond increased revenue. It helps reduce re-accommodation costs and payouts to volunteers. It takes the entire overbooking/volunteer chaos out of the airport and into a text or email, days in advance, reducing the stress for both gate agents and passengers.

United fielded its Volunteer Solicitation Program saying it helps streamline boarding and reduce stress for customers and employees alike. It says it is all about putting the customer at the center of its business model. It saw a 60% increase in customers – including basic economy passengers – electing to adjust their flight schedule during the check-in process with this tool. United recently won the 2019 CIO 100 award for its fully automated tool.

“We saw an opportunity to not only remove the stress by preventing potential overbooked flights before they occur, but to also offer an opportunity for customers,” said Linda Jojo, executive vice president of technology and chief digital officer at United Airlines. “This is the latest step in our plan to provide our customers with industry-leading transparency and control.”

It also minimizes the likelihood of another David Dao incident in which a passenger is bodily dragged off the airline so violently, he was hospitalized.

“Airlines have huge variability and challenges in their commercial operations,” Volantio CEO Azim Barodawala, explained to Flyer Talk. “Capacity is constrained with no way to sell more seats when a flight sells out. Demand is also volatile and if airlines ‘protect’ seats for the last-minute travelers, and ultimately those travelers don’t book because the flight looks sold out, then airlines lose out. Our tool enables airlines to better manage these challenges. For example, if the demand profile of a flight changes a week prior to departure, our tool enables airlines to open up a few more seats for travelers who really need to travel. That’s good for last-minute passengers, the airline and for passengers who benefit from their flexibility in ways that they could not in the past. This will change the airline-passenger dynamic because our aim is to help airlines deliver an improved passenger experience, by providing them with more predictability and control over their journeys.”

 

AI and Machine Learning Put to Use

The technology, which uses machine learning and artificial intelligence, identifies customers who might be flexible and responsive to the right reward including frequent flyer miles, upgrades or travel vouchers. The platforms use passenger data on how many people are traveling, origin and destination, flying preferences and reasons for travel in order to identify good candidates for offers.

Despite its success, United’s program is it is only available at check in either online, its app or at airport kiosks. LATAM’s Carevalo Exchange use indicates passengers are less likely to take changes less than five days out.

Barodawala agrees. “Our research shows that passengers have significantly more flexibility in their travel plans the further in advance you contact them,” he told Flyer Talk.

Volantio is being used by seven airlines including Alaska, Iberia, Volaris, IndiGo and Qantas. Investors in the Volantio Yanna platform includes Amadeus Ventures, International Airlines Group, jetBlue Technology Ventures and Qantas Ventures.

Recently, Volantio was incorporated into Amadeus’s offerings. The partnership enables Amadeus’s Altéa technology to offer airlines the ability to integrate Yanna at a far faster pace than would otherwise be possible.  So far, partner airlines have seen an average of three-to-five times returns on their investment, and customer feedback has been very strong.

The question then becomes whether others besides United will apply these programs to basic economy fares? Neither Caravelo nor Volantio are aware of their platforms being used to buy back these ultra-low fares. If they don’t, then airlines would really be stupid.

But there may be a solution for business travelers with TravelPerk, which guarantees a 90% refund on fares, hotels, trains or cars in return for a 10% premium on the booking. In Travelperk’s Flexiperk program, designed for corporate travel managers or businesses, travelers can change plans up to two hours before departure.

“One hundred percent of trips are refundable. Book what you want, cancel when you need,” said the company on its website. “Twenty-six percent is the average savings compared to traditional flexible fares.”

 

Conclusion

To be clear, airlines are not fielding these programs for altruistic, passenger centric reasons. These platforms are all about making them more money. At the same time, however, they are also easing passenger pain just a little. Are you listening American?