Hitting Reset on Airline Retailing: Part 1

PROS, Inc.

The airline industry is going through a strategic reset on how we view retail as part of the transition to modern airline retailing and offers and orders. It is a transformative and exciting time in the industry, as airlines across the globe innovate and consider new forms of retail.

In this 2-part series, we will deep dive into some of the ideas the industry is assessing as part of a shift in consumer buying trends. In this Part 1 we explore ideas like vouchers and all-you-can-fly memberships, and in Part 2 we delve into ancillary optimization and merchandising and pay-as-you-go/pay later models.

The concept of a prepaid flight voucher or pass allows a traveler to conveniently pre-purchase a number of flights at an agreed-upon discounted rate to be redeemed and booked at a later date. It’s kind of an a-la-carte ancillary for flight subscription. 

In a survey, we polled over 250 people and found that 82% of respondents said that if airlines offered a prepaid voucher or pass that offered significant discounts on future flying, they would buy it. The majority of those surveyed indicated that they would be motivated to purchase in advance if the discounts were 50% or more.

Even though the airline would be offering flights at a discounted rate, they are receiving upfront payment for flights that have not been booked, which is an interesting concept.

The idea of prepaid flight vouchers or passes isn’t necessarily new idea, but it is rarely a core feature of airline retail strategies. One of the first airlines to offer prepaid packages of flights to travelers was Air Canada.  Air Canada’s Flight Pass product sells its discounted flight packages in two ways: via one-way packages of flight credits or unlimited travel for either 3 or 6 months. One-way flight credits can be redeemed within a selected geographic zone, during specific periods and are typically valid for one year after purchase. Air Canada has additionally sold prepaid Flight Passes aimed at targeted demographics, such as The Student Pass, which is a Flight Pass for university students who want to pre-purchase flights at locked-in prices.

Several airlines have launched pre-paid flight vouchers or products. Why? The concept can bring flexibility for a traveler and increase their customer satisfaction and loyalty, while generating upfront revenue and cash for the airline. However, there can be some hurdles for airlines to overcome before being successful. Most prepaid flight voucher programs today are more complex than booking a normal flight and require that the user select origins, destinations, or geographic zone. These terms work well for customers who have frequent flights between the same origin and destinations, but not those who flight outside of regional or international boundaries.

Another worry for some airlines is potential revenue cannibalization – they do not want to lose revenue from potentially higher paying customers or frequent flyers that have a higher willingness-to-pay. According to the survey, 71% said that if a 50% discount were extended, they would spend at least 500 euros on prepaid flight vouchers. Our recommendation is to offer prepaid vouchers with no geographic limitations and longer periods in which to redeem flights. Instead of geographic zones, pricing could be based on other criteria such as total miles traveled or elapsed travel time. 

Airline Memberships

When most of us think of the word “membership” in the context of airlines, frequent flyer programs such as Star Alliance, Sky Team and One World, probably come to mind first - organizations or alliances of airlines with shared frequent flyer benefits rather than actual memberships. Paid airline memberships are programs in which customers pay a yearly fee in exchange for privileges that are not typically included when buying most flights or that only come with higher tier levels found within loyalty programs. Several airlines that currently offer airline memberships include Frontier and Wizz. In our recent survey, 79% said they would be interested in buying airline memberships if it came with elite privileges.

The most frequently requested items for membership programs were:

Membership Programs Requestes infographic

The items that customers were least interested in include:

Ground transportation via Black car
Dedicated Customer Service
Concierge Services
Free Standby
Bring a Friend

The Frontier GoWild All You Can Fly pass  is offered for around $599 per year and offers unlimited flights to domestic and international destinations.  The catch? Passengers have to be comfortable flying last minute – domestic flights are confirmed one day before departure and international flights 10 days before departure. Similar to Frontier, Wizz offers All You Can Fly for roughly 599 EUR per year.

Although memberships haven’t been traditionally that common with airlines, they are frequently found throughout the travel industry, for example: Vail Resorts and Inspirato.  The Epic Pass offered from Vail Resorts offers unlimited skiing and riding at their mountain resorts across the world at one prepaid price. Inspirato offers the Inspirato Pass which offers unlimited nights at vacation homes, four/five-star hotels, and resorts for one price per month, with no additional nightly rates, taxes, or fees.

Customer Experience

On the customer side, an unlimited flight pass provides unparalleled flexibility and freedom to travel when and how they want. Paying upfront for a number of flights potentially removes the stress related to purchasing and could positively impact travelers’ willingness-to-pay for ancillary products and services pre-, during and post-trip. It also binds them to a brand for a longer period of time, which opens up the opportunity to build a stronger relationship with customers, understand their needs and learn from their digital experience.

Since an unlimited flight pass would be assigned to a particular customer, there would be no need to enter passenger details or payment data which would make reserving or booking a flight extremely fast and hassle free. In addition, modifications and cancelations would not have to take into consideration financial reconciliation, providing additional flexibility to the traveler and reducing customer service time by the airline.

So why don’t more airlines offer this feature? Many may fear that unlimited yearly flight passes, or subscriptions, may jeopardize their revenue.  However, many industries have made this subscription model work. Subscriptions generally help establish deeper relationship with the customers, enabling more personalized add-on products or recommendations to create more revenue while building true, locked in customer loyalty.

Let’s use an example from outside of the travel industry - Apple iTunes. At first, Apple offered a personal account which allowed users to listen to and download unlimited music at a set price. Apple then got users hooked on their product and soon they started offering add-on services at additional fees, such as a Family Plan, based on what they know about the users' personal situation. Users can add an additional recurring service with the click of one button and no mention or hassle of payment.

It will be interesting to see where how successful they are in the years to come. As the industry continues to transform its retailing capabilities and works to become more customer-centric, will more programs like these become available? It certainly seems that at least during a survey, travelers have interest. When surveyed, 50% said that they were willing to spend more than $200 for a yearly membership, nearly 30% said they would spend more than $300 per year. If that translates into the real world, still remains to be seen.