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.

 

Virgin has had a variety of experiences regarding upgrades

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?

 

What do fliers see?

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.

Dollar almighty, or utility?

What has your experience been with airline upgrades? Any great stories to share? Let me know!

 

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