Comments on: Airline “Pay Per Minute” Plan Is a Bad One

By: CF

CF — Fri, 09 Jan 2009 16:00:37 +0000

Brian – I would imagine they’d have peak and off peak minutes by time, but that would vary by route. Then you’d have seasonal peaks and special event peaks as well. That does start to get relatively complicated in that when you buy minutes, you don’t necessarily know what they’re worth. Besides, all the sophisticated guys with revenue management systems can shoot you out of the water. (PeopleExpress anyone?)

By: Brian Lusk

Brian Lusk — Fri, 09 Jan 2009 14:53:02 +0000

CF
I partly agree with you. I think airlines morphed from offpeak “Night Coach” fares into a whole range of fare buckets so they could maximize revenue by date and flight. Paying by the minute wouldn’t offer that flexibility. However, based on my pre-deregulation days, I don’t think time-based fares are all that complicated, unless you have different fares every hour.

I think a bigger question might be, is the cost to operate of all the apparatus involved with today’s revenue management systems a self-perpetuating system. In other words, would any revenue loss by going to a simple system be overriden by the reduced expenses? I would guess not, but I think it is an interesting question.

By: axelsarki

axelsarki — Fri, 09 Jan 2009 03:11:59 +0000

i aggre whith the obnoxious site!!!!!!!

By: CF

CF — Thu, 08 Jan 2009 20:04:52 +0000

Brian Lusk – Let’s say it’s a nice long 5 day match so the peak period will last for a week! I definitely understand that airlines don’t raise fares but rather restrict lower classes, but in this case there’s no other option because there is no revenue management ability. Adjusting minute rates doesn’t really work that well, because you can buy minutes to book within 90 days on flights up to a year out. So, when you set minutes at a certain price to stimulate demand, you have no way of directing those minutes on to a certain flight or time period. If you’re going to try to have types of minutes (peak, off peak, etc), then you’ll quickly get away from the point of the simplicity, don’t you think? then you might as well have fares.

By: Mark Ashley

Mark Ashley — Thu, 08 Jan 2009 19:35:07 +0000

…on the upside, the flight minutes convert to cell phone minutes if unused. :)

And don’t forget that they will still allow traditional bookings. The prepaid plan is just a gimmick.

As I argued when I posted about this on Monday, this is similar in concept to the NetJets card or other private jet fleet subscriptions, just on a much lower-brow level.

By: Brian Lusk

Brian Lusk — Thu, 08 Jan 2009 18:46:28 +0000

CF, is the cricket match an International Test Match? But speaking of that, you ask if they would raise their minute fee for an important event like that, or maybe even holidays. For the most part, airlines with city-specific fares don’t raise fares for the Super Bowl or holidays, they just restrict the amount of discounted fares. I would imagine that Airtime’s costs wouldn’t change for an event, so if they have their minute fee at the right rate, their overall revenue would increase for the cricket match through additional passenger without having to raise the minute rate. On the other hand, it seems like a minute fee would lend themselves to adjusting rates throughout the day. You could have premium morning and evening minutes, even discounted night minutes. And, you could publish event fees well in advance so it wouldn’t be a surprise. I don’t know but it would seem like supply and demand would work here too. The only difference is that everyone on the airplane would be paying the same. This is still revenue management, you are just substituting time demand for using complicated seat demand system. Instead of squeezing the max revenue out of each passenger, you would get max revenue out of the time of day.

By: Randy

Randy — Thu, 08 Jan 2009 18:15:13 +0000

Short haul vs. medium or long haul also becomes an issue. A short haul flight has more fixed costs, crew, landing fees, vs. the time/distance flown. Hence CASM on a transcon, the cost per seat mile, or may it be time in this case, is far lower, where the airfare would be sky high based solely on time, but on a short flight, the airfare would be low but the CASM/cost per minute would be far higher. As you also mentioned, it takes revenue management right out f the equation. Good gimmick in the public’s eye, terrible for revenue optimization.

By: Airtime fan

Airtime fan — Thu, 08 Jan 2009 16:40:20 +0000

Agreed, it’s not a great pricing model. Hopefully they’ll forget about that nonsense and put in place a proper pricing structure – the competition and low fares are most welcome!

By: CF

CF — Thu, 08 Jan 2009 16:39:06 +0000

AN – I think the mileage requirements are mostly due to simplicity reasons. It would take a big restructuring to actually tie miles to distance (and it’s not necessarily the right thing), but the airlines would probably be too afraid to try anyway.

David – Actually, if demand is high, then both airlines will probably fill their planes but SAA will get a lot more money for it. If demand is low, you’re right, SAA will drop fares and fill its planes more. This could get ugly.

By: David

David — Thu, 08 Jan 2009 16:30:56 +0000

Your analysis omits one other thing…..
The big players like SAA and Comair already have a pricing structure which matches fare to demand. Consider the person who wants to fly Jo’burg to Cape Town. If demand is high, the consumer flies with Airtime for a cheap fare. If demand is low, consumer flies with SAA for a cheap fare. In either case, the consumer pays the cheap fare. Airlines like SAA have the reserves and corporate contracts to ride this out – Airtime will just see its reserves disappear into thin air !