Premise
I’ve been wrestling with this conundrum ever since I saw empty, upgraded / First Class seats on a previous Virgin America flight. This post will attempt to lay out the business strategies of both parties involved in the upgrade process: airlines and consumers. Does it make financial sense to upgrade for free, or at a discounted rate? Perhaps not at all?
I have seen some instances, even within carriers, that gate agents bump up people to nicer seats free of charge, or offer upgrades at a fixed price. I have also seen agents leave those seats bare when the asking price found no takers. Quite an interesting problem to have.
Upgrade: Airline Perspective
For airlines, different seat classes and rows serve as a form of price discrimination, to extract more value from consumers and lower the overall consumer surplus, which is the difference between what consumers are willing to pay and what they actually pay. If consumers find value in boarding first, or securing an aisle, or upgraded seats, airlines usually are all too willing to sell them those add-ons. This is regardless of timing – at ticket purchase, check-in, gate, etc.
However, this represents a purely economical view, and assumes the airline and its employees are perfectly rational. They are, after all, only human, and sometimes act accordingly. For example, I have successfully asked my way to a first class upgrade on a non-full flight for my birthday from Atlanta to New Jersey (thank you Art of the Ask). I believe it was Delta, who won loyalty points for their generosity. I did not post on social media about it, it did not go viral, and I am sure it happens more frequently – always for military personnel, or other important situations.
But, there could always be the case where agents do not budge, and only have the upgraded seats available for purchase, at a $200 or $400 price. When customers do not find the value there, those seats go unfilled, and consumers stay in their original seats. An argument could be made for an auction type system, since, to the airline, it does not really matter where the flier sits on the plane. Yes, there are some additional costs of service / food items / drinks / etc., but those are marginal at best. Perhaps a $99 or a $149 price would tempt the flier?
Consumer Perspective
For a consumer, a complimentary upgrade to business or even first class depends on the stand-by upgrade list, or typically the level of loyalty with the airline’s frequent flier program. I’ve seen instances at Virgin America where gate agents automatically bump up those with status, and offer to sell remaining upgrades at a fixed price. By doing so, they are maintaining the value and standards, by signaling to fliers that there is no such thing as a free lunch, and that they should not wait to see if they can score a cheap or free upgrade.
Conclusion
I can see the argument from multiple sides: give free upgrades to spur loyalty, or sell upgrades at a reduced price to get additional revenue, or keep upgrades at fixed prices and let them sit empty if there are no takers. For the most part, I see a combination of the first two: good PR is just what airlines need (especially in this day and age) and selling upgrades at full or reduced price helps keep things fair.
What has your experience been with airline upgrades? Any great stories to share? Let me know!
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Good article…thanks. I often purchase Business but, once on a Turkish Airlines flight which was supposed to be a charter (terrorism-related drop outs), I was able to purchase upgrades to First for €75 (Dublin to Istanbul). Unfortunately, it was an “at the gate, on the day offer” and so the return flight upgrade would have been €600 each! Sat in the back and it was still fine.
Yes – all about tradeoffs here. Good for first upgrade for EUR75! amazing.
I think the real reason that airlines don’t discount upgrades further at the gate or at check-in is that those who traditionally don’t mind paying a lot more to just book a premium cabin will stop doing it and just pay the less amount to upgrade. For example say you look at a flight that is $900 in economy and $4000 in business but you know you can upgrade at the gate most of the time for less than $200 why would you ever pay the $4000? I think that airlines should get better at up-selling the elite passengers. Many of them want to fly up front but either can’t book it through corporate travel or gamble on a free upgrade. Some airlines already do this but some are bad at doing so (like American for example).
Good topic.
Exactly – by preserving the value people have set expectations!