CCAirways - Latest Comments

Re: Which upgrades policy makes the best business sense?

Intuition in business — Fri, 02 Dec 2011 01:46:25 -0000

In the process of our intuitive development, we learn to
listen more deeply and follow the guidance that comes from within. Because
conscious awareness is building during that time, whenever we choose not to
listen and go against our intuition, the lessons learned seem twice as powerful
and painful than if we had listened.

Re: Which upgrades policy makes the best business sense?

ung1 — Tue, 25 Jan 2011 06:03:11 -0000

I think the EK model makes a lot of sense, but needs some adjustments.

Increasingly everyone is looking at cost. Most J-class passengers are upfront because corporate policy allows it. But increasingly corporates are also looking at cost, and a significantly cheaper ticket on EK probably makes sense, as the level of service is almost comparable. SQ manages to skim the very top layer of the market, but cannot work on the economies of scale EK can achieve, given their size. All this means is that for the same price, EK can deliver a much higher level of service or make more profits, either way beneficial to the airline.

The issue of a free seat beside you is increasingly becoming less important. Look at SQ's new J product, or EK's A380 product - most seats don't have an adjacent seat. So on SQ's 1-2-1, I would say fill up 1-1-1, or up to 75% of capacity, whether through fare paying passengers or upgrades. It maintains the exclusivity of the product while rewarding premium customers. On EK's 380, 2-3-2 out of the 2-4-2 can be filled without having a seat neighbor. Obviously, filling up the J cabin to 100% capacity does reduce the exclusivity of the product for those paying full fares.

What I think needs to be looked at with EK's model is the relative frequency of awarding these operational upgrades. There is no clear basis on which Gold or Silver passengers are selected for an upgrade. It makes a lot more sense from a loyalty perspective to hand out op-ups based on incremental loyalty, rather than to always upgrade the passenger with most tier miles. So, keep track of how many upgrades a Silver has received (say 7000 miles out of 28000 flown), and use that ratio (0.25) while selecting who to upgrade. This brings some equality, while retaining the flexibility to always upgrade Golds over Silvers, and perhaps Golds with over 100k tier miles at a higher frequency than those with between 50k and 100k.

Re: Which upgrades policy makes the best business sense?

Gerald Lim — Sat, 22 Jan 2011 07:02:05 -0000

Singapore airlines label's its business/first/executive class as a premium product thus its heavy restriction on upgrades to protect the full paying customers. Singapore airlines doesnt require an operational upgrade because it usually does manage to sell all/most of its business class seats before economy class sells out on most of its long distance flights.

On the other hand Air Canada launches its eupgrade credits and its previous years upgrade coupons ensure that everyone in its premium frequent flyer league gets to experience their executive first suite which is not half as bad ?

Should that be worth mentioning ?

Re: Which upgrades policy makes the best business sense?

Eightblack — Thu, 20 Jan 2011 02:48:42 -0000

The argument that a "limited" upgrade policy helps to maintain the "integrity" of the J class product may have been true when SQ was clearly ahead of the competition (with spacebeds, Krisworld, high standard as far as their soft product went) but I don't believe that to be the case any more.

For one, Emirates clearly gives SQ a run for their money. They have comparable J class products, some would argue that Digital ICE is better than KrisWorld, the EK soft product is just as good and their FFP is far more generous and liberal with upgrades, chauffeur drive etc. They are also much more competitive price wise.

I used to be a PPS member, have flown in excess of 1M miles on QF/BA on RTW the tickets in premium cabins and the same mileage on UA.

I would have received more op-ups on EK in the last 12-months than I would have on SQ/QF/UA combined in the last 15 years.

The frequent upgrades on EK in my mind, doesn't devalue F or J on EK. I know at the end of the day that if I want to guarantee a premium seat, I should pay for it. To me, the upgrades and overall experience ensures I stay loyal.

EK are in a unique position. They derive in excess of 70% of their income from the back of the plane. They also have a remarkably low volume of Gold and Silver Skywards members compared to the total membership base and compared with other airlines. This means nothing but good news for EK elites.

Re: Which upgrades policy makes the best business sense?

bsweigert — Wed, 19 Jan 2011 00:37:49 -0000

I tend to agree - at least the liberal policy is easier to measure, but from a purely business standpoint I *admire* the limited policy and any company that can successfully execute it.

Another key factor in which policy would be the markets the airlines operate in - the aggregate market for the front-class seats. The reality of EK markets is that the majority of them are still relatively low yield (but this is rapidly changing) and have multiple competitors. Sure, EK attracts many high-end customers, but the sheer numbers are biased to the back cabin due to their strong presence in the developing world.

I think the limited policy is kind of like Apple's pricing strategy - keep prices high, resist discounting to match competitors, and keep access relatively scarce to create a feeling of exclusivity. Key to this is to have a world-class product to meet expectations.

Re: Which upgrades policy makes the best business sense?

Chris Tomseth — Mon, 17 Jan 2011 21:53:08 -0000

Great writeup and analysis Bruce. I think you are spot on. From a purely business sense, my intuition says a liberal policy is better. Put another way, if EK and SQ were both to simultaneously flip their policies 180 degrees, what is the likelihood of a revenue increase or decrease? My experience tells me EK revenue would decline, and SQ revenue would marginally increase.

Re: Which upgrades policy makes the best business sense?

bsweigert — Fri, 14 Jan 2011 01:38:28 -0000

Sergio: Whats interesting to note is that we both come from the Asia Pacific/Long Haul perspective. In busy US domestic markets, particularly from major hubs, F/C class typically is full of top-tier FFP members that have been upgraded. There is a very small percentage of these seats that are actually sold at fare, relative to long-haul international markets.

As for the pros of the Limited policy, I've read several reports that state that having an adjacent empty seat is one of the most coveted perks of top-tier FFP membership. However, in some of the newer C/F configurations, I can see where its a lot less important than in the past.

Re: Which upgrades policy makes the best business sense?

Sergio — Fri, 14 Jan 2011 01:25:45 -0000

It would be interesting to rate other airlines too. I am a frequent flyer on Cathay Pacific, which tries to adopt a Limited Upgrades Policy, but seldom compensates overbookings with a Liberal Policy.
So, a smart flyer would try to fly economy on a fully booked B747 (with more business class seats) by exploiting a 24h-notice confirmed booking tier benefit.
In conclusion, there is a whole range of airlines which enforce a mixed policy and I agree that FT is the proper reference source for that.

Last but not least, I don't agree on the pros of the Limited policy.
In fact, premium classes are designed for minimizing passenger reciprocal disturbance.
Moreover, most of the premium customers won't be bothered by sharing the space with upgraded passengers who paid a smaller fare, as their own tickets were paid with company money.

Re: Which upgrades policy makes the best business sense?

bsweigert — Tue, 11 Jan 2011 10:50:49 -0000

Stephen: The policy is independent of the balance of inventory between cabins, however it is true that the opportunities for upgrade will be much less with less capacity to absorb upgrades.

Re: Which upgrades policy makes the best business sense?

Stephenbb — Mon, 10 Jan 2011 23:36:00 -0000

another important element in the mix to consider is an airlines upper cabins configuration/capacity. If they have limited first and business class cabins this will influence substantially which policy an airline should/could adopt.

Re: Ancillary Revenue â€“ New Revenue or New Accounting?

Stuart Barwood — Tue, 07 Dec 2010 09:38:25 -0000

I agree that for the most part they are just moving from one pot to another just to keep advertised prices low but there are some genuine ancillaries out there.

What concerns me is that whilst the fares are unbundling many airlines do not have accurate information on what consitutes a large part of their revenues.

Many just use an average figure for all "ancillary" (including displaced fare revenue as you point out in your post) when in reality passenger buying behaviour is much more complex and needs to be modelled accurately or risk leaving holes in forecasting.

It's one thing to move this revenue from the core fare for passenger benefit however it must still be managed and forecasted as if it was still a constituent part of the fare.

Re: Ancillary Revenue â€“ New Revenue or New Accounting?

Bruce — Tue, 07 Dec 2010 07:58:45 -0000

Stuart:

I understand what you are saying - especially the behavioral part where the airline looks to control actions by passengers that unnecessarily drive costs. These are all OK to me too.

Yet, many of the practices of the European LCC's such as EasyJet and Ryanair are the same as the US carriers - just moving revenue from one bucket to the other. The confusion comes when the industry hypes ancillary revenue as the new secret to profitability.

Re: Ancillary Revenue â€“ New Revenue or New Accounting?

Stuart Barwood — Tue, 07 Dec 2010 07:37:58 -0000

I think what you say about shifting ticket revenue towards what is now termed "ancillary" is especially true in the case of US legacy carriers however is the case worldwide.

Remember that this trend towards unbundling the fare in Europe was a result of advertising standards insisting that all core (non-avoidable) charges had to be included in the advertised headline price. The airlines faced with having to increase headline price found ways to reduce the price of the fare by removing anything that was not absolutely essential to the fare.

In this case it was very much a paper exercise to provide consumers with the lowest advertised fare possible and had the added advantage of allowing airlines to penalise passengers who were creating cost in the operation.

For an airline it really makes little difference which side of the line this revenue falls so long as the difference between displaced ticket revenue and genuine ancillary revenue is fully understood as many airlines lump everything into the all encompassing term "ancillary revenue". Both areas need to be managed in very different ways.

The move towards the unbundled fair also has implications for revenue management as it becomes harder to know the true value of a passenger without forecasting of ancillary purchasing habits.

As long as airlines manage it well it really makes no difference however for many the forecasting of ancillary revenues is a grey area which is not fully optimised.

Re: Bringing it together with next-generation PSS

Prasenjit SEN — Sat, 04 Dec 2010 07:15:26 -0000

I totally agree.In fact it often occurs to me how in those yester years an amzing system was developed on mainframe with so many interfaces and integrating different platforms yet ensuring real-time rsponse.In today's technoogy environment all these are not chimera.Thus to develop a next generation PSS it is necessary to acquire the Requirment in one single document.The customer touchpoints is a starting point no doubt but lots many inputs have to come from the airlines, airports,Travel agents,vendors and above all the customers.For that all of them t have to come to a common forum-cooperation and not competition can bring the NextGen PSS on SOA and Agile technology.

Re: Back to the future view on Google, ITA and the end of competition

Anonymous — Tue, 16 Nov 2010 22:39:44 -0000

Interesting analysis, however it contains a few fatal flaws:

1. The Orbitz case was essentially different from the Google-ITA case. Orbitz was launched because of rising powers of the OTA's then, so in a sense it was a defensive move of the airlines. OTA threatened to become more and more expensive as a key distribution channel, and the airlines wanted to do something about it which is why they launched Orbitz.
In the Google-ITA case the stakes are very different. Google is already THE dominant player in travel search (everyone who has their hands in online marketing campaigns in travel know that all to well). And ITA is THE dominant technology for fare comparison. So the potential acquisition will create monopolistic monster that will wipe out the fare comparison market to begin with, and will undeniable have an undesirable amount of control over the advertising market for travel companies.

2. The ITA technology being 'not good' in 2001, and being 'great' in 2010 is essential to the whole argument. It took ITA a long time to build great technology in the highly complex environment of airfares. One could argue that most web technology could be effectively replicated in a year or so nowadays. Not so for the technology that sits on the border of web technology and legacy airfare theory. Although new entrants should be able to work faster with knowledge gained in the mean time, it will still take several years for a strong competitor to ITA to exist.

3. Google is not only a player in search and travel. They are also a key player in mobile, shopping, maps, TV etc, etc., and considered one of the three or four potential new technology consortia (with Apple, Facebook), which are able to leverage users and date across different domains. This makes the monopolistic position that Google is taking in travel search all the more undesirable, and makes a lead of several years against new entrants potentially fatal.

Unless you believe that antitrust measures should never be taken, and the market should always be allowed to take care of itself, I would argue that the Google-ITA case is one of the few cases where a real concern is in place, and the DOJ better does a thorough job on this one.

Re: Back to the future view on Google, ITA and the end of competition

Graham — Mon, 01 Nov 2010 02:24:31 -0000

No, I think not! If Everbread end up being half of what it looks like it could be, those not happy with ITA will have a very powerful alternative to turn to. I will get my "Google bought a lame duck" post ready now :)

Re: Back to the future view on Google, ITA and the end of competition

Bruce — Mon, 01 Nov 2010 01:50:15 -0000

Thanks Graham - I tend to agree and think the timing of the Bessemer Venture Partner announcement is no coincidence!

Re: Back to the future view on Google, ITA and the end of competition

Graham — Mon, 01 Nov 2010 01:32:23 -0000

With any luck, Everbread will make ITA a moot point within the next 6 months anyway.

Re: Ancillary Revenue â€“ New Revenue or New Accounting?

Jonathan Tong — Wed, 27 Oct 2010 23:07:37 -0000

Hi Bruce,

i do agree with you and your article does question, or at least raise some questions about the steep growth for ancillary revenue.

i believe LCCs experience the growth in ancillary revenues because this is their model; basic fare, no frails and charge for food, baggage etc...

For the legacy carriers, it is mostly like what you had mentioned, a shift from one accounting bucket to another. They probably feel compelled to do so to appear more competitive. As such, their contributions to any analysis on growth of ancillary revenue, should not be considered unless they are outside the usual inclusions.