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Airline “Pay Per Minute” Plan Is a Bad One

Anyone heard of Airtime Airlines out of South Africa? If not, you’re about to hear about it as every blogger that covers airlines is bound to write about it. These guys want you to buy minutes for travel like you buy minutes for cell phones. Let’s be clear here. This isn’t a good idea.

Before I get into why it’s bad, let’s talk about exactly what it is a little more. You buy a 09_01_07 airtimeairwayscertain number of “minutes” and then you have to spend however many minutes it takes for a flight to complete. Now this isn’t real-time minutes we’re talking about here. It’s just based on the scheduled time. That would really suck if they billed you extra for circling during a thunderstorm, huh? And what if you ran out? Yikes.

The airline was scheduled to start up very soon with flights from Johannesburg to Durban, Port Elizabeth, and Cape Town, but it appears their deal for aircraft fell through. If it does happen, the Durban flight, for example, will take 75 minutes, so that’s how much you’ll have to pay.

It looks like you buy a starter kit with minutes at South African R5.00 (about 50 US cents), and then you top-up as you go. The top-up rate changes whenever they want it to change. When I looked on their obnoxious Flash-powered site, it was R6.00 per minute, so that’s about $50 each way to Durban, but it could go up or down from there. This appears to be the only form of revenue management they have, and that’s why it won’t work.

As my wife said to me, the simplicity in the message to the consumer is about the only thing that they’ve got going for them. It may work in the cell phone world, but for the airlines, this just isn’t a good idea, and it all comes back to the high fixed costs and perishable product in the industry.

Effectively, this ties fares to costs, and it completely ignores demand. Since airlines have high fixed costs and those seats can’t be sold once the plane has departed, the key is to maximize the amount of revenue that goes on to each flight. But this doesn’t allow for that. So let’s say that you sell a bunch of minutes to people who want to go to Cape Town, but you aren’t selling any minutes to people who want to go to Durban. You could try to drop the cost of minutes, but then that will lower the rate for people who want to go to Cape Town as well.

Sure, you could also offer deals to Durban saying that you only need half the minutes for the flight, but once you start getting away from the simple message, then you lose the whole point of the plan in the first place. If a minute doesn’t actually mean a minute, then just stick with fares and don’t bother with calling them “minutes.”

What if there’s a huge cricket match in Durban one weekend. Will you make people use double minutes for the peak time? If you do, people won’t be happy with the sudden and seemingly random devaluation of their purchase. As you can see, the simple method breaks down quickly.

It’s not like this is the first time this has been tried. It’s effectively how US fares were structured before deregulation (but they used miles). And what happened after deregulation? The airlines adjusted fares to match demand in the market. That meant they could lower fares in most places since the comfy confines of regulation had pushed them too high, but it also meant they could offer multiple tiers of fares with a variety of fences to get people to pay closer to what they were willing to pay.

I definitely appreciate the desire to make things easier for the customer, but the high fixed costs and perishable product in this industry make this a bad idea.

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