As we are slowly heading to the end of an era for the travel industry, everyone is talking about safety measures as a key to earning back market confidence. While it’s true there are several improvements to be made there, today I will talk about another side of the story, pricing models.
Importance of Cheap
If we separate travelers based on how they reacted to the covid-19 pandemic we will see that there are two big opposite groups.
First we see people that are very scared of the virus and will not travel again until they are 100% sure the danger is contained and probably that would happen only with a vaccine. Safety measures help but are not enough for this market.
On the other hand, we have a segment that is not so worried, building months of travel abstinence and willing to take some risks in order to go out into the world again. They also now cherish their trips even more than before, having experienced the situation of being denied the chance to do it for so long. On this group though, pricing is a key decision driver and since it’s the first one to boost demand in the following short term, you need to address them properly.
Subscriptions
Netflix, Spotify, Amazon Prime, we are definitely in the subscription model era and people are used to it. But for some reason the travel industry hasn’t caught up with this trend yet.
There are some companies offering annual subscriptions in order to get some discounts on flights and hotels, but the discount based pricing is not transparent enough and if you analyze the companies we mentioned before they don’t work like that. Instead you just pay a flat monthly fee and you get unlimited content without any extra cost, no surprises.
You may think this is not applicable to flights because they are a lot more expensive than a movie, song or a free delivery. I disagree and let me tell you why.
Unlimited Flights
Not every airplane flies full, depending on the route there are usually several seats that were not sold. Classic revenue management strategies say you need to maximize revenue per flight, and sometimes it’s better to not sell some seats than lowering the prices for all of them because they would sell anyway. But at the moment of departure the time is up and that empty seat is lost.
What if in that particular case you would offer the seat on a first come, first serve basis to your subscribers? People would pay to have the opportunity to show up at the airport and get into the plane only if there are empty seats available at the end of check-in time. There is also room there for some cross-selling of luggage or food. You could also have different pricing options based on destinations like domestic, specific continents or worldwide.
Bidding War
On top of the free seats, there’s another value proposition that could be offered only to subscribers. Following the same logic as before, 24 hours before departure an alert is sent to everyone nearby saying X number of seats were not sold and a bidding will start. Each customer will have the option to bid on a price for those seats. If there are more bids than seats, of course the higher bids will get them. If not enough bids, those seats will remain available for the last minute free deal.
Final Thoughts
While I understand that this could lead to speculation and losing some sales at the real price, I strongly believe this model could work. The target market is still a niche but could generate recurring revenue that is paramount for a healthy operation. This is the kind of innovation expected from the industry and considering that demand may not go back to last year levels for a long time, plenty of airlines and OTAs will cease to exist and need to do this kind of moves in order to survive. And the first ones to do this also have a multiplier viral effect of launching something new and inspiring.
