Originally Posted by
CrazyJ82
Some interesting points, but I don't entirely agree. I'd resist being too picky over the semantics of reward for loyalty vs incentive, since for these purposes they're largely the same. The incentive to make purchases in the future is that you expect to receive a reward/rebate from that purchase at some point further in the future.
Yes, but the reason why I made my semantic point was not to be pedantic but to highlight a false logic. If you want to reward purchasers, then the obvious logic is indeed that the most you are given, the more you should give back. If you try to incentivise, the logic becomes wholly different: you effectively need to gauge elasticity (both positive and negative).
Incidentally, it is for the exact same reason that (as many people often complain), the airline may often upgrade a silver pax over a GGL one.
Originally Posted by
CrazyJ82
In your model, they can count on filling the most expensive seats anyway because the demand will always be there, and so they need to incentivize the lower end of the market. I'd bet it's exactly the opposite. The universe of customers who are willing to pay full whack for a J or F ticket is relatively small compared to the capacity, especially as the ME3 bring more capacity online and some of the U.S. carriers up their games on TATL. For the lower end of the market, the cheap price itself is the incentive. But for that rarer upper end, you need to work harder to make sure those pax are flying on you instead of your competitor.
But there is really no relationship between the point I was making and the point you are making, and with which I largely agree! My point is a revenue management point. RM fix prices specifically based on what they believe that they can sell, so from that point of view, my point on the upper end seat is merely a paraphrase of their logic. This is unrelated to the fact that some people might be willing to pay full price even, for that matter, if cheaper fares are available, and which you typically manage not through RM but through ticket conditions.
Three further observations on that however:
1) Very few passengers actually pay full fare. As pointed upthread, for instance, many "full fare" J tickets on LCY-JFK will actually have a lower rate than your Christmas special non-changeable-have-to-book-28-days-in-advance I fare on the same route;
2) The perfect illustration of my point on the lower end is Ryanair. They managed to create buyers for flights to places buyers had never even heard about. Sure, Ryanair prices can be a great way to incentivise that, but BA, LH, or AF haven't got that option because of their costs, so they use other things like FFPs. Again, on this forum, the CTU fares we keep reading about are an excellent example. As reported, the flights did not do well in premium classes. So BA had to rely on people buying up to J for cheap but also on those who saw it as a good way to build TP balances. This is not a viable strategy if this is all you are getting as an airline (hence the route closing since it didn't also have the full fare potential easily enough) but it may be necessary to have those incentivised travellers who would not have flown to the Chengdus of this world anyway. The leisure premium market which is what we are talking about here (the leisure Y market already gets nearly nothing anyway so won't be penalised by a revenue model) is by no means only price-driven, and incentivising with a mix of price and avios/TPs is more economical for the airline than incentivising on cost only which would imply greater reductions in fares to achieve the same result.
3) Can't have it both ways: you're right that the customers willing to pay any fare are rare to come by, but it doesn't make them FFP-sensitive and quite frankly, those I know really aren't. One of my FT friends who mostly flies LX, AF, and Middle Eastern airlines, mostly in F, occasionally in J, and has a very much larger travel budget than almost anyone else I know tried BA for some of his US trips this year, and basically just gave up on them because he found them "rubbish". He did not like the hard product, he hated the airport experience, and he couldn't care less if BA gave him 5 times more avios or TPs (and quite frankly, GGL doesn't compare to HON in terms of benefits and soft perks anyway). So basically, he stopped that experiment and BA lost that particular goose that lay the golden eggs.
So the lower end of the premium market may not be as FFP-sensitive as it is price-sensitive, I'd volunteer the argument that the upper end of the premium market is yet far less FFP-sensitive and that if it is what Walsh and Cruz believe will seduce them, I very much suspect that they are in for a big disappointment, hence my mentioning that in that case, we are indeed heading towards a self-fulfilling prophecy where the FFP will indeed become a cost centre.
And yes, BA have progressively switched from treating BAEC as profit centre to cost centre. They started doing it at times of economic glory so that the changes would be easily absorbed. Whether there is a different cost in forthcoming times of likely crisis is another matter entirely.