The economics of upgrades
Auction platforms are successful, but are there better ways?
Getting a free upgrade is the travel equivalent of winning champagne in a raffle – it probably won’t happen to you, but on any given day somebody will get lucky.
Free upgrades are great marketing for airlines to showcase cabins and, having enjoyed a smoother flight, some passengers will be inspired to pay extra cash in the future.
This article is about the economics of upgrades. The first part is a refresher course in how and why airlines upgrade for free.
The second part covers the economics of upgrade auctions. In 2023 these generated USD 5 bn (GBP 3.7bn) across air, rail, cruise, hospitality and loyalty according to Plusgrade, an auction software vendor.
In the final part I compare the potential revenue generating capacity from auctions, which generate a hefty slug of revenue from a few passengers, against competitions, which can generate a small revenue delta from many.
An airline upgrade competition app is an opportunity that any canny entrepreneur is welcome to steal.
Upgrades & downgrades – some basic principles
On four-cabin aircraft, upgrades come in three flavours:
1. Single cabin: Economy to Premium, Premium to Business and Business to First
2. Double cabin: Economy to Business, Premium to First
3. Treble cabin: Economy to First.
On twin-aisle aircraft without Premium, an exciting Economy to Business Class upgrade may be possible. This is the most enticing possibility for most passengers – more on that coming later.
Airlines have always upgraded passengers when lower cabins are overbooked. The alternative is letting a seat go empty and spending money to accommodate the passenger elsewhere.
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