Airlines

Avis takes a page from the airlines.

Posted on by andy30123f14

avis

For years the airlines have been perfecting the art of filling seats using algorithms and now Avis, the car rental company is doing the same. The car rental business has been a murky one and company’s have resorted to discounting their services to appeal to customers. Avis saw this as an opportunity to increase profits by improving upon their pricing tools. Now Avis has its own software, referred to as the “demand fleet pricing tool,” adjusting rental prices based on local data, past pricing, and other factors in 110 major markets. Airlines have been using similar technology to maximize revenue on air flights based on types of fares offered on that specific flight.

 

Top car rental companies Enterprise and Hertz have been less aggressive on their price increases. Nelson told analysts on a conference call. The pricing tool “accelerates and streamlines the decision-making process well beyond the capability of manual action.” Translation: Software is far more adept at extracting higher rental rates than humans, just like in the airline industry. According to a revenue airline manager under anonymity conditions says,”Each airline has a complex computer system based on algorithms that can maximize the profit on each flight based on the types of fares offered on that specific flight.” Airlines know that the system can use all available data to maximize profit. Information that cannot be predicted or computed by the algorithm requires the hand of a revenue airline manager, which is in charge of going into the system to adjust for events at certain destinations or weather conditions.

 

Avis saw a record breaking quarter this summer and forecasts predict to have a record breaking year. The more dynamic pricing for Avis is responsible for a 3 percent increase in prices which has generated 2.5 billion last quarter. Avis says each 1 percent increase in price represents $33 million to the company. Avis realizes that car rentals are part of travel expenses and is taking advantage by adjusting their pricing based on what is going on in the travel sector. Similarly to airlines that adjust seat prices based on the market, for example the a ticket price to Brazil in summer 2013 was not the same as summer 2014 when Brazil hosted the World Cup, Avis is using a similar approach.avisthailand.com

 

The increase in price for a car rental is hardly noticeable in the traveler’s overall trip expenses, less than a $2 increase in a typical four day trip. The ability to charge more for cars in North America, including for rentals made as part of corporate contracts, plays the largest role in Avis Budget’s improved financial performance. Avis is not revolutionizing anything, they did not reinvent the wheel all they did was improve on the systems in place and incorporate a new pricing tool, one that the airline industry has used for decades.

 

Can you think of other industries that can use this pricing tool? Have you used car rental services and was the price reasonable? Do you think this is a good idea to charge more for the same services? Do you think the increased profits will continue? Why or why not?

 

 

http://www.businessweek.com/articles/2014-10-30/avis-prices-rental-cars-like-airline-seats-and-youre-paying-more

http://www.foxnews.com/travel/2011/12/08/confessions-airline-revenue-manager/

United Airlines reward program: Boom or Bust?

Posted on by brianr598

unitedcheckin

I came across an article from this past week talking about how United Airlines is implementing new levels and requirements on its loyalty rewards program, MileagePlus. In short, airlines have historically rewarded their customers based on miles flown. United is now adding a twist to it where the number of miles flown is not the only requirement to achieve elite status. Aside from adding a minimum number of flights flown, they have now created “premier qualifying dollar” (PQD), which is simply the money you spend on flights. Below is a brief outline of the tiers of their program as well as what the requirements are to reach a specific level:

  • Premier Silver: 25,000 miles or 30 segments flown annually, and $2,500 PQDs
  • Premier Gold: 50,000 miles or 60 segments flown annually, and $5,000 PQDs
  • Premier Platinum: 75,000 miles or 90 segments flown annually, and $7,500 PQDs
  • Premier 1K: 100,000 miles or 120 segments flown annually, and $10,000 PQDs

I am a loyal southwest customer and in turn am part of their “rapid rewards” club. Their idea is very simple as you simply collect points based on the price of your flight, with the price of your flight directly related to the distance between the two cities you are flying to/from. Not to mention if you are close to  meeting the point total for a free flight but are not quite there, you have the option to purchases additional points without having to purchases a flight. This is a very simple, easy to understand, flexible and relatively non-exclusive program which is the way I envision a rewards program being. As a traveler, I am very comfortable with the program and I feel free flights are attainable. I  travel enough where I am concerned about earning rewards of some kind and a program such as United’s is completely unrealistic for me.  Unless I have to travel frequently for my job, I would not have this same level of comfort ability with rewards programs such as United’s outline above. I definitely connect better with Southwest’s rapid reward program and I feel that my business is valued and taken seriously by the airline, something I cannot say for United

In a sluggish economy, why is United (and other major airlines such as Delta) pursuing programs that are raising the bar and basically shrinking the pool of travelers who can qualify for these elite rewards? Why is prestige becoming such a major factor in the programs decision making process? I understand you do not want to give away your product easily but I feel programs like these do more harm than good by emitting a highly arrogant vibe. The airline is trying to gain a competitive advantage but I feel it is sacrificing business while trying to gain that advantage. The decision to pursue a program such as this was bad one almost from conception as I do believe the project managers were too focused on the specific issue of creating a prestigious rewards program  and as a result ignored the bigger picture. Focusing on differentiating yourself from a competitor is good but not at the expense of long-term sustainability. Especially given the fragility of the airline industry (and the economy as a whole) in recent times I would think decisions would be better thought out, more universal and simply more accessible to the average traveler as a means to entice new business and grow existing business.

What do you think of this new plan? Do you think it will be successful?

http://www.cnbc.com/id/100825006

 

Want a “bidding war” for your First Class Seat?

Posted on by spr1333jroe

A new trend being seen in airlines overseas resembles that of eBay for first class or business-class seats. As we all know, the price of airline tickets are not cheap and therefore, it is normal for many customers to automatically choose a coach ticket when flying. Airlines realized this was not giving them their most potential profits and looked for a way to fix it. As learned in class, in order to succeed, you have to continually look at the systems you are working with, and learn how to improve and be the best that you can. Airlines overseas, such as Air New Zealand, Virgin Atlantic, Brussels Airlines and CopaAirlines, realized this airline eBay and saw it as a potential to improve their company.

A company in New York has developed a system that essentially gives customers the opportunity to have “bidding wars” with one another in order to upgrade their seats. Once you purchase a coach seat, the airline will then allow you the opportunity to bid on an available upgraded seat. You will be given a minimum amount that you can offer in your bid, and then you decide the amount you would be willing to pay. If customers choose to participate in this auction process and end up with the highest bidding amount, the airline contacts them 48 hours before their flight and notifies them they had the winning amount and will receive the upgrade.

The decision to implement this newly developed system is turning out to be very profitable for the airlines. This eBay style system is not only saving customers hundreds to thousands of dollars due to not having to pay full price for first class seats, but it is also generating a good amount of revenue for the airlines. It has given them an opportunity to receive money for seats that weren’t originally selling at all.

While this system has seen many positive outcomes, there are a few worries airlines are having with it. Airlines are seeing that their loyal and frequent flyers, that are normally offered these available upgraded seats, are complaining they will no longer receive this. Airlines, therefore, have to come up with a solution that balances opportunities for frequent flyers and opportunities for flyers using the bidding process. Airlines do not want to implement a system that benefits half of their customers, but enrages the other half.

Do you think airlines will be able to come up with a balance between frequent flyers and flyers using the bidding process? Do you think this airline eBay will be something that continues to grow? Is it something that only overseas airlines will grab onto, or do you see this system succeeding in the U.S. as well?

Sources:

Video – http://live.wsj.com/video/airline-ebay-for-first-class/56E98E77-CDB9-4742-862A-E7751DDCDAC6.html?mod=WSJ_article_outbrain&obref=obnetwork#!56E98E77-CDB9-4742-862A-E7751DDCDAC6

Picture: Etihad Airways – http://society.ezinemark.com/best-first-class-airline-seats-worldwide-77365a7d46da.html

Airfare A La Carte: Has the airline ticket become a loss leader?

Posted on by w13viv

 

As airlines continually try to boost their revenue in this down economy, Southwest Airlines has announced that they plan to raise certain fees for baggage (third bags and overweight ones) and “early-bird” check-in. This is significant because Southwest has always billed itself as the airline without hidden or additional fees – yet now even they see the benefits from charging for add-ons on top of airfare (their AirTran subsidiary is also raising its existing fees for baggage and other items).

More surprising, however, is that they also are planning a “no-show” fee for passengers who fail to cancel a ticket prior to flight time – a first-of-its-kind fee in the industry. This is from an airline where flight costs were fully reusable, with no change or cancellation fees. They say that this will only apply to the lowest fare classes and is only meant to encourage passengers to release space that can then be resold.

Southwest certainly is not the first to charge ancillary fees – most major airlines started doing so in 2008, when American started charging $15 for the first bag checked. Over time, fees jumped higher and broader, to offer things like lounge access, extra legroom, priority security lines and earlier boarding – perks and services previously only available to frequent fliers or via membership. And, lest we think these fees are ridiculous, there are airlines out there that have built their model on selling the extras. Spirit Airlines charged for bags, beverages, and food well before 2008, and currently offers 8 pages of extras on their website; Ryan Air (a European budget airline) not only charges for literally everything, they have removed seatback pockets and window shades and covered headrests and tray tables with advertisements. They have even “joked” that they would charge for the bathroom if they could find a way.

It seems likely that the cost of airfare may soon become just the minimum cost of entry, with airlines barely breaking even (or losing money) on the ticket price itself just to sell all of the upgrades and extras. The true cost of traveling by air may become more like buying a car: sure, you can just pay the base price for a seat, but don’t you want the extra legroom and the rustproofing? A number of articles even discuss airlines installing premium and/or extra-legroom seats in the front to increase revenue, while squeezing smaller seats and reducing seat pitch in regular economy in the back. However, while the airlines have enjoyed the added revenue (indeed, it has kept some of them in business), they have lost big in customer satisfaction. Proponents of the fees claim that it allows travelers more choice in customizing their experience; it also keeps the base ticket price affordable than the ‘true cost’ of a flight.

As a leisure or occasional traveler, how do all the additional fees affect your choices? Do you prefer the choices of the “a la carte” approach, or would you rather pay a higher all-inclusive fare? For the frequent fliers out there, how do you feel about regular fliers being able to purchase the perks that were once only available to the elite?

 

Southwest Raises Fees, Adds ‘No-Show’ Penalty:  http://www.cnbc.com/id/100321169

Add-On Airline Fees: Good or Bad? http://www.cnbc.com/id/47857900

Spirit Airlines defends $100 carry-on bag fee  http://www.latimes.com/business/money/la-fi-mo-spirit-airlines-carryon-bag-fee-20121004,0,5442837.story

Like American, More Airlines Add Fees  http://www.nytimes.com/2008/06/13/business/13bags.html

Airlines shrink seats  http://articles.latimes.com/2012/oct/19/business/la-fi-airline-seats-20121020