UNITED863

Bolding mine.

I selfishly hope so, as I'm rarely in the upper-buckets for my near-95% out-of-pocket flying.

wanaflyforless

Predicting human behavior is not an exact science.

United has never had the luxury of testing what upgrade system gives more revenue in the real world.

jrpaguia

Regardless of fare bucket, when an infrequent flyer buys a Coach ticket, their expectations are all set for the back-of-the-bus experience.

When an elite buys any form of ticket, there's always the hope (and expectation) for an upgrade.

And I joined the US and WN programs* because I like the rules the way they are. I like sitting up front (and/or boarding first) and do not really care if the people behind me paid more for their tickets...the rules say: "fly more, get more" and that suits me just fine.

*coincidentally, two airlines that are currently profitable.

rjw242

Maybe not, but with their mountains of closely-guarded data (from tens of millions of passengers of all stripes each year), they can get a pretty good statistical sense of what's likely to work. While I don't automatically trust that they're following the right strategy, I'm 100% certain that they've spent a good deal of effort researching these options (with the substantial added advantage of data that we can't access).

sbm12

Both.

A hybrid approach, similar to what CO runs, actually seems to me to do the best job of rewarding loyalty and revenue. Anyone who has shown sufficiently loyalty to get to any status level (yes, 25K EQMs is loyalty) and who is on a top fare ticket (Y/B) is ahead of top-tier elites on lower fares. The one-time walk-up is still likely in coach but for the same fare even a small amount of loyalty is rewarded.
Everyone except AA was profitable last year, weren't they?

wanaflyforless

How different is the CO current upgrade system to my above made up chart?

RobinHoodNYC

[QUOTE=sbm12;15791356]Both.

A hybrid approach, similar to what CO runs, actually seems to me to do the best job of rewarding loyalty and revenue. Anyone who has shown sufficiently loyalty to get to any status level (yes, 25K EQMs is loyalty) and who is on a top fare ticket (Y/B) is ahead of top-tier elites on lower fares. The one-time walk-up is still likely in coach but for the same fare even a small amount of loyalty is rewarded.
+ 1

I agree, Y/B fares should be ahead of top-tier elites on lower fares.

Non-NonRev

I'd reverse 2 and 3, but otherwise agree with the general premise, although I admit to being ambivalent on the miles/paid calculation having weight in determining the pecking order.

- - -

The one thing I don't think anyone has mentioned is the non-monetary value that elites (especially top-tier) have to the airlines. Many of us, whether actively or more subtly, act as evangelists (to borrow the FT term) for many of our business and personal associates and friends. I'm not saying that the halo effect drives hundreds of millions of dollars, but I do think that the FF programs are predicated on some positive benefit.

Leccy

This is a premise i am interested in, and if i am honest i struggle to get my head around today! Although in this example they are losing money, is that only the case if you assume the seat would otherwise be resold? How much money do they "make" by having a loss-leading FF in it versus going empty?

I have no concept what the average load capacity is these days, but it strikes me that sometimes selling a proportion of seats at profit and filling the others at near cost would be an ok strategy.

boatseller

Well, not exactly. The airplane will likely fly with or without A or B so the cost really isn't attributed to the passenger. The passenger is viewed as a revenue source.

For random travelers who buy walk-up fares, A, the need to travel, or rather be somewhere, is greater than the price sensitivity or potential incentives. The airlines know this so there's actually less incentive to cater to them. Y-up fares probably do the trick just fine. What they really, really want are loyal, last minute flyers.

Airlines have traditionally favored B and the loyalty programs are designed to attract and hold those passengers. I'm sure there's the expectation, and probably reality, that when B turns to A, they'll stick to the program.

The almost guaranteed revenue from the relatively small top tier is more valuable than the possible revenue from the perhaps equally small walk-up.

It also has to do with the philosophy of the company. CO for example seems to be "Book high, or at least try." While AA feels like "Book often and early." And DL, "You get what you pay for." Then WN with "You're all in the same boat."

I vote for the top elite. (In the name of full disclosure, I am one. )

sbm12

A bit different. On CO Y non-status are at the very bottom of the list; B get nothing.

Within group 1 there is no $/mile rate; everyone is eligible.

At the lower rates they do not split the status groups up. A platinum on the cheapest fare will trump a gold on the 3rd highest fare.

Doing the math for $/mile just adds complexity over and above what's reasonable in a system that is already pretty confusing to most customers. Prioritizing by date of purchase makes more sense to me as that tiebreaker (the longer the company has had my money, the better for them so I get a bit of a reward).

Henwurst

+1
I may travel cheaply, but whenever someone else is paying, guess which ticket I will pick!

I agree that a middle way seems to be the best although I'm more inclined towards rewarding the FFs. The airlines shouldn't upset high paying customers, but I still think that the best perks should be for the FFs for the reason that has been mentioned several times here: A strict cost-benefit correlation ultimately leads to competition between the airlines that is based on price, which is not in the airlines' interest.

A non-FF who pays for an expensive economy ticket hardly expects to fly anything but economy. I can see how he/she has extra high expectations for the trip to run smoothly, so I think complementary fast track and priority boarding may be suitable, but there is no need to add anything extra at the cost of upsetting any FFs that happen to be traveling on cheap fares that day, risking their loyalty.

Also, giving the occasional high revenue passenger an incentive to remain loyal, by tempting with possible upgrades may create a new FF. If they are spending tonnes of money anyway and get the upgrades that way, then why would they bother to stay loyal, rather than going with the cheapest carrier that offers the same one-time perks?

I know that some airlines promote full fare economy as a way to circumvent the rules whenever an employer has decided not to pay for business class tickets anymore (accordingly an upgrade is to be expected as advertised), so I can see that non-FF in Y would trump a FF on a cheaper fare, but that is the only exception as far as I see it.

Also, isn't the top elite tier in most FFPs usually revenue based anyway? So, the biggest spenders do ultimately get the highest priority. Of course the system isn't bullet proof (hence FT), but I do believe it makes a lot of sense to give the loyalty scheme high priority as it makes/tricks travelers think not only about cost while choosing who to fly with.

wanaflyforless

Very good point!
Yes, certainly the airlines need to sell many seats at a loss, as they cannot fill a plane with everyone paying over cost.
But my question is should loss leader passengers be getting the upgrades before the highly profitable less frequent customer.
Yes, but why should they fly UA instead of WN?
Y-up fares are very often not available at the last minute.
Many other last minute purchasers have a travel policy that dictates no purchase of first class (including Y-ups).
They will however be buying 10 very expensive tickets per year. What airline will they choose?
How does the UA model of giving me, the cheap 1K, the upgrade instead of that last minute $$$$ ticket the upgrade create loyalty from the last minute traveler? An airline needs to attract all last minute frequent flyers who buy $$$$ tickets, not just those very very few who fly every week.
Legacy airlines have lost $$,$$$,$$$,$$$ more than they have made over the last decade.
10 years ago, we had TWA, American, United, Continental, Northwest, Delta, America West, and US Airways.
Since then, 6/8 of those companies went bankrupt.
8/8 have merged with another carrier.
Yes, reasons are many, but don't tell me they have proven their business model works.
Some would argue they have proven their business model does not work.
How do we stop this less frequent high revenue last minute flyer from choosing WN next time?
Offering them something WN cannot offer seems like a good solution to me.
United GS requires one to spend $40K-$100K per year (depending where you live). It is a good program.
But how are we going to get the 10 times a year (10 tickets at $1000 each) lucrative customer to not fly WN?

Penbank

Not always true. There are those who were once super plutonium level who now only fly 5-6 times a year, which means cattle if spread over 2 airlines. Those people (me) figure "why am I paying all this and getting lousy service?"

boatseller

If the need is pressing enough, they will fly the airline that gets them there fastest, regardless of loyalty program or price. If the fastest happens to be the cheapest, that's just a bonus. If you have to get from LAS to FAR today, guess what, you taking G4, even with Hope Diamond status on DL.

Because when you switch from B to A, you will be more likely to stick to UA, that's the loyalty they're cultivating. It is much easier to keep you in the fold that attract some random flyer. Business School 101: Cost of customer acquisition. The random A flyer has little or no loyalty so why bother to chase them.

As frequently pointed out here, the 'legacy' problem is not revenue, it's cost. None of the benefits we're discussing address that.

They don't necessarily have to grab every customer. It's not worth ticking off the $75k GS because she happened to book a Q fare the conference planned three months in advance to accommodate some last minute dude they may never see again.

As regular, reliable, recurring customers, we are more valuable than the random A, regardless of the fares they pay that once or twice a year.