The end of the free upgrade

A free move into business class could become a thing of a past as the major airlines look to raise extra revenue online

The economy passenger’s dream ticket – a free upgrade at the departure gate – now looks endangered.

Online upgrade auctions that allow travellers with cheap tickets to make blind bids for unfilled business class seats are on the rise, as airlines across the world catch on to the innovative new way of making extra cash.

Last week Austrian Airlines became the latest carrier to start taking bids-for-beds, following in the footsteps of Air New Zealand, El Al of Israel, Etihad of Abu Dhabi and Virgin Atlantic.

In future, passengers buying cheap tickets for long-haul flights via Vienna are invited to bid for an upgrade to the business class cabin, which boasts 2 metre-long flat beds. If successful, they also get fast-track security, access to business lounges and improved catering.

The technology behind the bidding services has been developed by American software developer, Plusgrade, which claims it is in talks with several other carriers about offering the facility. The firm’s chief executive, Ken Harris, told The Independent: “Everybody loves an upgrade. At this very moment there are many smiling passengers in the sky, criss-crossing the world”.

The airlines that have signed up are all aiming to fill seats that would otherwise fly empty. They want to squeeze more cash out of economy passengers, while attempting to ensure they don’t “cannibalise” earnings from existing full-fare business travellers. Therefore, the system uses even more smoke and mirrors than usual in the airline industry.

When a passenger buys a ticket on a flight that is predicted to have empty business class seats, he or she will be invited to bid for an upgrade. Airlines are coy about the average level of winning bids for fear of setting a “price list” that may persuade existing business-class passengers to switch. Karsten Benz, chief commercial officer of Austrian Airlines, said: “With a bit of luck a small additional charge is enough.”

Some airlines exclude passengers who buy the most heavily discounted tickets, while Air New Zealand insists that bids are placed at least a week before departure. The Air NZ auction, called “One Up”, uses a colour-coded on-screen meter to indicate how successful a bid is likely to be: a NZ$100 (£55) offer for a Heathrow-Auckland flight from economy to premium economy shows red, while a bid for 10 times as much gets a green.

Successful bidders are contacted at least three days ahead, while those who bid too low travel as originally planned; their credit card is not charged.

Air New Zealand tells disappointed bidders: “We can’t go into specifics about why requests are not successful.”

Aircraft are flying fuller than ever before. International Air Transport Association figures for 2012 show an average “load factor” – the proportion of seats filled – above 79 per cent, meaning that on a typical flight only one in five seats is empty.

Traditionally, average load factors have varied between 70 and 75 per cent. More tightly packed economy cabins means the attraction of business class increases. Yet the premium for, say, Virgin Atlantic’s Upper Class is astronomical. The cheapest Virgin ticket from Heathrow to New York, departing tomorrow and returning a week later, is £462 in economy but £5,400 in business – more than 11 times as much.

The airline now auctions Upper Class seats on “almost all routes”. A spokeswoman for Virgin Atlantic said: “Passenger acceptance has been good – with a good take up rate.”

British Airways has no plans “at the moment” to emulate its rival by introducing upgrade auctions, according to a spokesman. At present, BA passengers can pay a specified amount to upgrade existing bookings.

BA, in common with other full-service airlines, sometimes awards free upgrades. The Gatwick-Thessaloniki flight last Saturday was a typical case. Like many weekend flights, it was “oversold” in economy class – but BA correctly judged that there would be space in business class, and that passengers could be moved to the front of the plane.

The beneficiaries were not picked randomly, but by scanning the manifest for gold card holders, signifying a high-spending traveller on BA.

Some frequent flyers regard the occasional free upgrade as a well-deserved perk, and are alarmed that it might be eroded if the empty flat beds are all auctioned off to the highest bidders.

300 world ‘super routes’ attract 20% of all air travel

New analysis from Amadeus Air Traffic Travel Intelligence solution reveals that worldwide air traffic volume grew 5% between 2011 and 2012, with Asia being the largest, fastest-growing and most competitive market for air travel. Asia experienced year over year growth of 9% between 2011 and 2012, followed by Latin America, at 6%.
• Each ‘super route’ carries over 1 million passengers per annum, according to the research.
• Air travel in 2012 was higher than 2011 in all regions of the world with significant growth of 9% in Asia and 6% in Latin America.
• Asia is the world’s most competitive aviation market with 75% of routes served by three or more airlines and just 25% of routes by one or two carriers.
• The Middle East is a rapidly growing hub as shown by traffic volume between Europe and Asia routed via the Middle East, growing by approximately 20% between 2011 and 2012.
• Low Cost Carrier penetration is highest in Europe at 38% and North America with 30%

Among other key findings, the study reveals that 22% of all global air travel is concentrated on just 300 origin and destination ‘super routes’, each of which carries over 1 million passengers annually. Furthermore, 69% of all global air travel is made on major routes with 100 thousand annual passengers.

The analysis also shows Asia as the market with the highest airline competition, 75% of the region’s air traffic is operated by 3 or more airlines and 27% by five or more airlines, making this a region with a very intense competition in all its air travel routes.This contrasts sharply with other regions such as the Middle East and Europe where just half of all air traffic on its routes is operated by three or more airlines[2]

Analysis of the busiest routes in the world by passenger volume shows that seven out of the top ten world’s busiest air travel routes are in Asia. Jeju-Seoul in South Korea remains the world’s busiest air route with over 10 million pax per annum.

35% of air travel in Europe and North America is made on smaller routes with fewer than 100 thousand annual passengers. This contrasts sharply with other regions such as Asia where 85% of air travel is concentrated on routes that carry over 100 thousand passengers each year.

This concentration of Asian air travel suggests the region’s growth may continue as there is an opportunity for airlines to develop secondary links beyond the heavily competitive super routes. In addition, the analysis shows that in Asia, the larger routes with over 100 thousand annual passengers have a 4%-9% growth range, but the smaller and medium sized routes in the region are growing at approximately 19%-21% per annum.

Globally, the airline industry has become consistently more competitive over the past three years. The percentage of air traffic served by just one or two airlines has fallen by 2% each year from 39% in 2010 to 35% in 2012. Concurrently, the percentage of air traffic with four or more competing airlines has also risen consistently from 35% in 2010 to 38% in 2012.

Asia is the market with the highest competition between airlines in the world, with 75% of air traffic volume served by more than 3 airlines and only 25% of air traffic served by one or two airlines.

This contrasts strongly with other regions, for example in Europe 45% of air traffic volume is served by just one or two different airlines and in the Middle East 50% of all air traffic has only one or two competing carriers.

The rise of low cost airlines has been significant over the past decade, but this has been largely limited to traditional markets. Today, Europe has the highest concentration of LCC traffic, representing 38% of total air travel in 2012.

Within specific regions, the spread of LCCs varies strongly. In Europe, Spain has the highest share of departing LCC traffic at 57%, followed by the UK where 52% of all originating air travel is now made on low cost airlines, up 4% from 2011 and passing the 50% milestone for the first time.

The Middle East is becoming an increasingly important global air travel hub. The region’s three key airports of Dubai, Doha and Abu Dhabi, are all experiencing strong overall air traffic growth of around 10% per annum and they have very high levels of connecting traffic, with each airport seeing around 50% of its total air travel volume connect. These figures demonstrate the region’s increasingly important role as a hub between Europe and the emerging markets of Asia and the South West Pacific.

Italy Fines Ryanair Over Online Booking

Italy’s competition watchdog fined Irish budget airline Ryanair EUR€400,000 (USD$522,500) for falling down on commitments to simplify online ticket sales.

The regulator said the airline failed to provide an overall clear price at the very outset of the online booking procedure.

In the period December 1-February 7, Ryanair introduced at the end of the online booking process a 2 percent processing fee on a series of credit cards, the antitrust body said.

It said ticket prices should be “clearly and fully indicated from the very first contact with the consumer in such a way as to make the final price immediately clear,” it said.

Consumer association Codacons said all commissions on online air tickets should be eliminated.

“The commission costs for buying with credit cards are very high and are kept hidden by some airlines until the last moment,” Codacons president Carlo Rienzi said in a statement.

The fine follows a similar reprimand by the Netherlands Consumer Authority last month which fined Ryanair EUR€370,000 for hidden costs associated with tickets purchased online by Dutch travellers.

Ryanair rejected the accusation.

“Ryanair will appeal the unfounded decision by the Italian competition authority,” a spokesman for the airline said.