Allegiant Looks to Appeal to Gamblers with Option to Bet on Fuel Prices

Allegiant has quietly slipped a note into a federal filing that says it wants people to be able to pay for fuel price fluctuations after a plane ticket has already been bought. And I like it. I know, you think I’m insane for saying such a thing, but there are some very good reasons why I like this. It really is good for the gambler, er, traveler.

Allegiant Fare Fluctuate with Fuel Price

Let me start by saying that the idea that you can buy a ticket and then be forced to pay more if fuel goes up sounds awful in theory. I mean, people save up for their trips over time, and not having certainty around how much that would cost would really destroy a lot of plans. Had that really been Allegiant’s goal, then this probably would have earned a Cranky Jackass Award. But that’s not what they’re doing. Let me take a snippet from the filing with the DOT itself.

Allegiant is considering a new pricing option for use on its website: when making a purchase, consumers would be able to choose between a traditional “locked in” fare that would not fluctuate, and a lower fare that could change before the date of travel. That lower fare could be reduced further or could increase (up to a set maximum that would be clearly disclosed) depending on changes in fuel price between the booking and travel dates. This would be a non-compulsory alternative for consumers; it would provide them another option for potential substantial savings on their trip costs and would be clearly disclosed and explained prior to any purchase.

In other words, there would be two pricing options. Let’s just throw some numbers around for the heck of it. You could pay $100 for your flight to East Bumblef**k and never have to worry about the price changing. Or you could pay $90 and then have the price fluctuate with the price of oil after. So if oil goes down from when you bought, presumably the price would go down and you’d save money. If oil goes up, the price would go up and you’d lose money. This is perfect for an airline based in Vegas, because it’s a gambler’s dream. (I wonder if they’ll hand out those sad pamphlets about gambling addiction with the sun setting on the cover?)

So why is Allegiant talking about this in a federal filing? Well there’s a proposal that would make it illegal to have post-purchase price changes. Allegiant is arguing that it would be a good thing for consumers and that one of the alternative ways to deal with this issue that has been proposed should be accepted instead. That alternative would not just allow blanket price changes, but it would have three main requirements.

  1. The potential for the increase needs to be “conspicuously” disclosed to the buyer.
  2. The maximum potential amount of the increase must be shown.
  3. The customer would have to proactively agree to the arrangement before purchase.

Why does Allegiant want to do this? Because it allows the airline to sell a lower fare. And lower fares mean more people are willing to fly. As long as the disclosure is clear, then why not have this as an alternative? I can’t imagine myself ever wanting to take advantage of this option, but if others want to, then great. It lets Allegiant better match revenues with costs, and it gives customers the chance to decide if they want to play the game or not.


31 Responses to Allegiant Looks to Appeal to Gamblers with Option to Bet on Fuel Prices

  1. > Well there’s a proposal that would make it illegal to have post-purchase
    > price changes.

    Would that proposal apply to Cruise Ships as well? If so, I _like_ that proposal….

  2. Bret says:

    Anyone who has gone through the experience of purchasing a ticket with allegiant will tell you that disclosure is not their strong suit. They pull every possible trick to force the consumer to add on unnecessary fees and make it difficult to find out how to pay the lowest fare. It’s downright sneaky. Customers don’t even realize they’ve added these fees. I wonder how this type of policy would factor in? I could potentially see lots of customers buy this type of ticket and be blindsided when the price goes up after ticket purchase.

    • CF says:

      That’s a great point. It’s all in the implementation, and if they do it wrong, this could be a very bad thing.

  3. Eric says:

    I’ve always thought it would be interesting if airlines sold tickets in terms of gallon of gas. For example, LAS-BLI might be $50 + 10 gallons, sold at whatever price Jet A is on the day of purchase, with refund or extra fee on the day of travel. This is almost what Allegiant is doing.

  4. iahphx says:

    While I like this idea in theory, I think it’s too complicated for consumers, and too complicated to administer. You just have to take your chances on fuel when you buy or sell an airline ticket. If Allegiant is concerned about what fuel will ultimately cost to fly its travellers, they can buy a fuel hedge from Wall Street.

  5. Alex Hill says:

    My biggest concern is how I would know what fuel charge they’re using. If it’s based on the price the airline pays for fuel, that would be very difficult to verify independently, so consumers would have to trust the airline to be honest after the ticket is purchased. That’s a tough sell.

    If it’s a transparent formula based on the price of a barrel of oil on a particular marketplace, that could work.

  6. MeanMeosh says:

    The problem, Cranky, is that regardless of how much merit the idea might have, the bottom line is, there are hordes of travelers who aren’t going to bother reading the T&Cs of the new fare, and then when they’re asked to pay more, complain to the press and the DOT about Allegiant’s “unfair and abusive sales practices”. Sad, but true. Personally, I think this is an interesting idea, but they need to be real careful in how this is marketed, lest they want a PR nightmare on their hands later.

    The other thing I wonder about is how Allegiant’s current base fares are going to be affected, if at all. If the new, lower “flex fuel” fare is accompanied by an increase in the existing base fares, it smells of a disguised fuel surcharge, and I hope they’re at least transparent about it. Dump the cheesy corporate spin, admit that fares are going up because of fuel prices, and then pitch this new fare option as a new way to possibly save some money.

  7. Must buying an airplane ticket now turn into playing the stock market? Will Ma and Pa Kettle now need to hire a broker just to buy a plane ticket?

    “Should I buy now?”

    Sounds like they ran out of things to add a fee for so came up with this idea to make more money.

  8. oldiesfan6479 says:

    We should also mention that Allegiant is cutting loose all of its ground staff (counter, ramp, etc.) at Vegas, and outsourcing their jobs. Oh yeah, they can re-apply for their own jobs with the new handler (roll eyes emoticon). Alaska at Seattle, anyone? Disclaimer: I am the farthest thing from a unionista, but this sucks!

  9. JayB says:

    Cranky, stuff like this makes it 110% certain you’ll never run out of material to write about.

    As to the issue, what did they do, hire someone from Alamo, whomever? “Would you like to prepay gas, at our very, very reasonable price per gallon, which today is 17.89/gallon, or buy gas on your own (of course, we think you’re not smart enough to do that) and bring the car back full?” Buy now and lock in that wonderful price!

    No thank you, Allegiant. I don’t trust you, what you might charge me down the road when I fly. Fuel issues, surcharges, drive every consumer of transportation service, every mode, just nuts. And with the legalese that Allegiant might come up with here…please!

    Then, that leads us back to the whole business of coming up with fares…any fare. Someday, in a time far away, every fare will be set at the time you the customer and they the airline communicate, negotiate, and agree. An offer, a bid, an agreement, bingo, done. Payment for delivery of a service at some given time. Sure, a fare might go down $100 one second after you buy it, but when, oh when will we finally accept this as a fact of normal, everyday, business life?

    • CF says:

      That’s the beauty of this thing. You don’t have to do it. (And I can’t imagine I would.) But there’s nothing wrong with offering it as an option, if it’s displayed fairly.

      • Oliver says:

        They could also offer gambling on board — nothing wrong with that option ;)

        I’d bet you track the Jet A prices more closely than anyone here, and if you cannot imagine doing this (presumably because you don’t feel it’s worth your time or you don’t expect to win the gamble), why would the average once-a-year Allegiant traveler be expected to make an informed decision here?

        I’d bet cash the Allegiant folks aren’t doing this out of the goodness of their hearts (they run a business, after all). They see it as a way to increase revenue and/or profit. For instance, which of the two prices will they advertise in the future, the fixed price or the lower gamble fare? (hiding the fact that you may end up with a higher fare somewhere in the fine print)

  10. Jim says:

    Why not just ask each customer to bring ten gallons of fuel? Those who fail to do so can purchase it at the airport.

    But on a serious note, I like this idea. It simply gives more options. It’s like purchasing trip insurance vs. taking a risk of cancellation.

    • Joe says:

      …because I can’t get 10 gallons of Jet A into 3oz bottles.

      (also, as others have pointed out, who knows what they’re actually paying–airlines are never paying FBO prices for their fuel; they’d all go out of business if they had to pay $7.02 for Jet-A at LAX)

  11. David says:

    Suppose the fixed fare is $100, but the variable fare is $90,with the possibility of increase or decrease as flight date nears.
    If I pay $90 now, and the fare goes down, I get a refund which is great. If the fare goes up, am I then obliged to hand over the extra cash, or is it a case of “If you don’t pay up then you can’t fly, but we won’t force you to pay up” ?

    If it’s the latter and the fare is a restricted fare, then it leads to a kind of cheap cancellation clause. If the day before the flight I decide I don’t want to pay, then the money I lose only $90 rather than $100.

    For those who fly very rarely and are uncertain if they will make a trip, this sounds like quite an attractive deal. Allegiant need to think quite carefully about how the terms of what happens in the event fuel prices rise significantly.

    • Excellent point on the cancellation, although since it is a contract that you’ve agreed to they probably can put in that they’ve got the right to charge your credit card. (Just like the rental car companies have the right to make you purchase fuel if you didn’t fill up the tank.)

    • CF says:

      There are definitely a lot of things to consider when putting this together. Allegiant certainly isn’t going to discuss these things with us until they roll it out, but you would hope they’ve thought about the potential impacts of a change like this.

  12. aliquot says:

    I see a new fee for the “convenience” of having a set fair.

  13. I think this is a great idea, and one I’ve been rallying for for a while.

    First, lets look at one of the other points to compare this against: driving. Most people pay for the fuel as they use it. That means that if you’ve committed to take a vacation (and made a hotel reservation, and tour reservations and bought theme park tickets.) you’re on the hook for the variation in fuel costs.

    Second, the model of you buy a ticket with every possible service under the sun except liquor and headsets for the movie is on its death bed which has been moved to a Hospice. The airline didn’t mind taking the minor fuel risk when the fluctuation over six months was a minuscule percentage and their profit margin was much higher, but now they do. Sure they could buy fuel hedges, but that basically is just putting money in investment banker’s pockets, and in US Airways’s case, they’ve figured that its just not worth funding Lehman Brother’s brethren.

    Six years ago when I worked in trucking the price we paid our vendors changed every week based on this chart: http://tonto.eia.doe.gov/oog/info/wohdp/diesel.asp We wanted the lowest price, plus we didn’t want to continually renegotiate prices when the fuel price changed.

    What’ll make this work for Allegiant is if they offer enough of a differential for them to take the risk of fuel prices.

  14. gseual says:

    prices should go down as they move the ground handling at vegas to a vendor ridding the company of pesky employees

  15. Ed Kelty says:

    When fuel prices went down, I didn’t note any airlines lowering their fares. Is this a one-way street?

  16. Thomas says:

    Cranky, you have lost your mind and common sence! If you had any to start with? I say this because, you did not like Delta Airlines making Air Miles not dissapear and now you want people to gamble with their money on a cheap money hungry fee grabbing noncustomer service airline? Have you lost all common sence? I wonder if because you have such a vast airline miles collection plus, fly more than the common person in coach class that you may have forgot how it is to live on low income and pay check to paycheck? It seems Continential Airlines did because of no free snacks or food in coach class. I just dropped them a note at Continential Airlines requesting no more Email junk ads from them because, I will not ever fly them even if the ticket is less than most, because of their stupid Greedy Corporate Office and Greedy CEO with no heart for the average low income working person. I will not fly them or others who are greedy like them. I will fly Southwest Airlines who gives free snacks and soda plus two free bags on every flight. Also I will fly Jet Blue when I have a chance because they give unlimited free snacks and free inflight television and sometimes free movies. I will only fly foreign airlines over seas that offer free mutiple meals, free snacks, free music and free movies. Turkish Airlines is one great Airline that gives nice servive in the sky as you fly across the ocean. So please Cranky show all of us here on your site that you are still for the little people (those that live pay check to pay check and fly coach when we travel!
    I did not mean any harm to you but you seem to be above all of us like we dont matter. The American Legacy Airlines think this and yes one by one they lose their company because of Banktrupcy and merger mania! I hope Continential and United go out of Business because of their greedy CEOs stupid anti business sence.Thanks for allowing me to post this.
    I hope other people will stop flying Continential Airlines, United Airlines, Alaska Airlines, USAirways, Alligent Airlines, Frontier Airlines and Spirit Airlines. Theses greedy companies dont care about people but their own wallet! Lets make them hurt financially by not flying them at all!
    Sincerely,
    Thomas Griffin
    TAG032562@juno.Com

  17. shane says:

    I am not an economist, but I think problem with the scheme is that this is a market-based solution without a true market. The flying public is the demand market but there is no supply market if only Allegiant is doing this. You can’t look at other carriers to compare fuel prices and markup. That means that Allegiant can manipulate the “cost” of fuel depending on their actal price and the number of flyers who purchase the flexible option: a lot of flyers purchasing flex this month, add an extra 10% to your markup. Fewer purchasing another month, cut your markup to $0 so that you can have a greater increase in markup when the demand increases. We already know Allegiant does not play by the book so its fair to speculate that they will stretch the regulatory rules if not break them. Are there any rules on this kind of transaction?

  18. SEAN says:

    If oil prices go up you pay more with this flex fare option & if oil prices go down?… The airline can still pocket a good amount of cash. I wouldn’t hold my breath on recieving any refunds do to the cost of sending them out.

    Have you sene the cost of oil futures since the troubles in libia began? It broke $100 per barrel a few days ago & what will that do to airline fares?

  19. scott says:

    Oh please; this just means that we’ll end up with more situations where you’re paying a huge portion of the fuel yourself; it’s a false advertising, and for US airlines a convenient fiddle to get around having to pay the US air transport tax (which only applies to the base ticket).

    It’s actually possible on some airlines already to book a flight where your fuel surcharge exceeds the fuel cost (Surcharge > (miles * fuel-cost/ASM))
    AC YHZ-LHR jumps to mind, and now that AC have silently re-added a fuel surcharge on transborder flights, I pretty much guarantee that for short transborders, the fuel surcharge would exceed the fuel cost.

  20. Tomstrr says:

    Eh? Trust an airline (especially Allegiant) to fairly and correctly administer a scheme that would allow them to charge you more money after you are committed, based on metrics that they fully control and can’t be independently verified? What could possibly go wrong? :) This proposal is, at BEST, an attempt to avoid the free market by obscuring the cost of flying on Allegiant. And hey, dump off their risk and mismanagement costs and pick up some coin on the vigorish! I guess its good that Cranky says he won’t actually buy those “historic” bridges, but getting his friends and family to buy them instead…..

  21. Jon says:

    Actually I think the guaranteed option is more like gambling. Using Cranky’s example numbers you are paying $10 to bet that the price of fuel will go up more than $10. If the price of fuel stays the same: you lose. If the price of fuel rises less than the $10 spread: you lose. If the price of fuel goes down: you lose. With the flexible option, you pay what it actually costs, no gambling at all.

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