Airlines are known to leave no stone unturned in seeking additional revenue streams (generally referred to as ancillary revenue), especially those with little to no cost. Airline auctions are a new tool being used by airlines to sell upgraded seats to the highest bidder in the days prior to a flight departure. As compared to simply giving such upgrades away to passengers based upon frequent flier status, airline auctions provide an immediate boost to revenues and profits.
Airline Auctions Explained
Premium airline seats often come with extremely high fares, which often results in such seats going unsold. As a result, airlines seek ways to fill these seats, including by offering upgrades to passengers who have purchased economy or other non-premium seats. Airline auctions involve the sale of upgraded seats, which may include first class, business class and premium coach seats. In addition, some airlines have even offered passengers the ability to purchase a seat next to an empty seat, offering what could be termed “neighbor-free” seating.
Airline auctions come in a variety of forms. Some auctions occur 48-72 hours prior to departure, while others occur at the gate prior to boarding. While the auctions that occur days prior to departure are often only made available to passengers with some sort of premium status with the airline, auctions at the gate are generally made available to all ticketed passengers, regardless of status.
Prices paid in such auctions are not generally disclosed, but the general consensus is that such auctions result in total airfare for passengers that is a significant savings over the cost to purchase such upgraded seats at the point of initial purchase.
There are many international airlines who use auctions, but the practice is gaining momentum among U.S. carriers. Airlines such as Virgin America are testing auctions and American Airlines has indicated it may conduct future tests of auctions after previous conducting such tests. Other U.S. carriers are also monitoring auction trends.
Auctions are a notable departure from the historic practice of awarding seat upgrades for a small fee (international) or free (domestic) to those frequent fliers possessing “elite” status. For example, Delta hopes to use airline auctions to help reduce the portion of passengers in first class who have paid from only 11% a few years ago to 70% in the near future.
“Winners” under these airline auctions appear to be the airlines themselves based upon the potential revenue and profit streams. In addition, airline passengers without an elite frequent flier status may have the opportunity to obtain an upgraded seat and at a lower cost, which may have been unattainable without such auctions.
“Losers” under these airline auctions appear to be those frequent fliers with elite status, who previously may have been able to obtain such upgrades for free. Coupled with changes in the calculation of points to be based upon purchase price and not miles traveled, the widespread use of auctions would appear to greatly reduce the benefits of possessing elite frequent flier status when traveling.
As a result of the potential negative impact on the loyalty among an airline’s most profitable customers, the incremental revenues come with a risk.
Technology improvements have enhanced the ability for airlines to seek innovative ways to increase revenues. Unlike ancillary revenue streams such as baggage fees, airline auctions have the potential to increase revenues and the satisfaction among some travelers. However, for fliers who in the past were able to leverage their elite status for free or reduced cost upgrades, airline auctions that ignore flier status will be viewed negatively.
For passengers who are unable to purchase a seat upgrade through an airline auction, Seateroo provides another means for such passengers to obtain a preferred seat. Unlike an airline auction that relies upon unsold seat inventory, Seateroo provides a platform where passengers may swap seats with other passengers.