Alaska Lowers First Class Fares, Sells More Seats

There’s been a lot of talk of supply and demand here on the blog this week, so I figured, why not pile on? Unlike our Monday discussion, however, this one isn’t controversial at all. Alaska has been lowering First Class fares. The result? More people buy First Class seats. Thank you, Captain Obvious.

Alaska Sells More First Class

On its recent earnings call, Alaska said that it had seen its paid First Class loads factor rise by two points in the last year, and revenues went up by 20 percent on an only 7 percent increase in seats. Good news all around. How did they do it?

Some of it is thanks to the more long-haul flying that the airline does. People may not care about First Class for the less than two hour flight from San Francisco to Portland, but they sure care a lot more on a 5+ hour flight to Hawai’i or a long haul from Seattle to Newark. Hawai’i in particular has really ramped up in the last couple years to become a major part of the airline’s route map, so that alone can make a big difference. But it’s more than that.

Alaska President Brad Tilden noted that back in the day, the First Class cabin barely earned its keep even though the fares were really high. Then this happened:

. . . we brought the First Class fares way down, I think our current add-on over the [full coach] fare is $150 in the longest stage length market. I think our customers have really responded to that value. We’ve gone from maybe from 1 to 1.5 [First Class] seats per airplane to four or five [First Class] seats per airplane. And we’ve also done a lot better with the upgrades, the fares that our mileage plan customers are paying to sit in first-class. And if neither of those work, we are selling first-class upgrades at the gate. I think we had a 20% increase in first-class revenue in the second quarter, and we are doing it in a way that our customer, I think, feels like they are getting really good value.

The decrease in fares isn’t a recent thing, but since it was brought up in the call, I thought it was worth discussing.In the end, this has resulted in a big revenue increase for the airline, and that’s great for everyone involved. The airline makes more money by selling more high fares, but the customers win because those “high” fares are lower than they used to be. This was the same kind of thing we did at America West back in 2002, though that was for the entire fare structure and not just First Class. The result, however, was the same.

So why don’t other airlines follow? Well, other airlines have a different passenger mix. Some of the big old legacy carriers actually sell more of those First Class seats, so cutting fares and increasing demand might actually result in dilution. It’s really an airline-specific type of thing, and only those airlines that don’t sell a ton of the high fares can afford to cut them down.

If you’re Alaska and you’re only selling 1 First Class seat per flight, you can cut the fare in half as long as you sell at least two of those tickets. Then everyone’s a winner. And that’s apparently exactly what’s happening here.

53 Responses to Alaska Lowers First Class Fares, Sells More Seats

  1. Frank says:

    If AS is 1) selling F to people because it’s not a huge add-on over Y, then 2) getting its elites to pay for higher fares in order to be able to upgrade, and finally 3) “if neither of those work” selling F upgrades at the gate, everyone may be a winner except for AS elites. The described strategy means that the pool of potentially upgradeable seats has been depleted tremendously (typically down to 0 on Hawaii routes and close to 0 on transcons). So one of the benefits of being an MVPG, complimentary upgrades on any fare class at 72 hours prior to departure, has gone out the window for the flights where it is most needed. On popular routes (see Hawaii and transcons), failure to book early often = no exit row seating, and since AS has no equivalent of UA E+ / B6 EML / VX MCS, the lack of an upgrade can be a real problem.

    • Anon says:

      To clarify, selling upgrades at the gate has no effect on elites, who have priority over purchased-upgraders. Upgrades are only sold at the gate if all free elite upgrades have already cleared (which now includes all Delta elites too).

  2. AirBoss says:

    HP also successfully experimented with reduced F premiums during its 1993-1994 restructuring.

    In general, once the F-to-Selling Y fare ratio exceeds 6-7 or the F premium over unrestricted Y fare exceeds 15%, F cabin RASM underperforms Y cabin.

    • Sorry, I’ve flown AS for years as a Gold. If you think you were getting upgraded on SEA-EWR/DCA on a $99 fare back five years ago, I can confirm for you that it wasn’t going to happen.

  3. Bellesarius says:

    The consequence has been to seriously erode the value of remaining loyal for Gold/Gold 75+ as free upgrades are almost non existent now on long haul routes. This will have consequences for Alaska’s most loyal business customers as they will likely shift to other carriers where elite status ensures better opportunities for special treatment. Business customers rarely are allowed to pay for 1st class.. try getting a customer to sign off the expenses.. so loyalty programs are key for keeping us in a particular airlines’ seats. I’m seriously considering switching next year away from Alaska to another carrier…

    • Frank says:

      +1

      This is exactly right. I’m inclined to stick with AS because I like the service and I’m based in SEA, but the fact that it’s so difficult to get upgrades on the routes that would matter to me is causing me to question my logic. I’d say my upgrade success on AS mid-cons and transcons is maybe 40%. On UA, when I choose 757s with larger F cabins, it’s probably 90%+.

    • CF says:

      I suppose I’ll have to retract my statement that it’s not controversial. I can certainly understand the elites not being happy about it, but if the airline can actually sell first class seats, then more power to it.

      Not sure where you (Bellesarius and Frank) fly most often, but if you’re in Seattle, it’s going to be hard to find a good option unless you’re willing to connect. I’m assuming that’s what Alaska is banking on. If it can sell First Class seats, it’s bound to make some elites unhappy, but people will generally keep flying because of the convenience factor.

      If Alaska started seeing tremendous erosion in its frequent flier base, maybe then we’d see some changes in this policy. But if not, then Alaska absolutely should be trying to sell these seats instead of giving them away

  4. People who actually pay for first class will like now paying less, but the coach passengers who think it’s their right to pay for coach and sit in first class will not if there are less seats available.

    Which means the statement “””””….however, this one isn’t controversial at all.””””””” will be controversial because those that whine they can’t upgrade will make it controversial. They will say how dare an airline try and sell more F seats and keep them from upgrading. Remember ‘whiners’ can always find something to whine about if it doesn’t favor them.

    • Frank says:

      I presume this is aimed at me. I’m a whiner? Really? I fly 40K+ miles/year with AS, who explicitly promotes complimentary upgrades to F as a feature for their elites, and I’m whining because those upgrades are, in Bellesarius’ words above, “almost non existent now on long haul routes”? So AS incents people to fly more with them and attain elite status in part to be able to upgrade on any fare, and when this is now difficult or impossible on the routes where it would be most helpful, I’m whining to point this out?

      • Hunter says:

        I don’t think you’re whining. It’s understandable to be disappointed when the upgrade isn’t available. But, it is important to remember the perk is not “unlimited upgrades;” it’s “unlimited space available upgrades.” There’s never a guarantee.

        • Not whining either.. but I am beginning to question the logic of maintaining a pretty loyal relationship with AS when I fly 50k+ miles and for two years straight have NEVER been able to use upgrade coupons they give me much less a free upgrade.. to be fair on routes to CA from SEA I get upgraded about 40% the time.. but sadly I rarely travel these.

  5. frank says:

    Alienate your MOST LOYAL customers with less upgrades OR fill up the cabin with cheaper first class tickets???

    Hmmmmmmm, Cranky, call public relations at Alaska and invite them to respond.

  6. I’m going to geek out for a minute here and say that I love your choice of photo because it’s of a 737-200 that never had First Class seating, and is no longer part of the fleet :-)

    • CF says:

      Nice catch. This was actually taken at Prudhoe Bay in 2004 when I had the chance to fly this bird down to Anchorage. It’s the same airplane that’s in the header at the top of this page.

      • Awesome. You don’t know how long I’ve wondered what that plane is. I thought it was a CRJ for the longest time. I forget but something screamed CRJ to me before it got Cranky Concerierged.

        • Ryan says:

          You can see the cheatlines near the wing that gives it away that it’s AS. I always knew it was a -200 because of the beautiful patch job on the skin in the top right part of the photo. Those babies took a beating and were peppered with rivets that were never there when they rolled off the assembly line :)

  7. Jason H says:

    I marginally understand the stance of Frank, frank (are you different than Frank?), and Bellesarius. I enjoy my upgrades when I get them as well. However, why should an elite flyer’s upgrade outweigh someone willing to pay the F price?

    Let’s look at some numbers.

    DEN-SEA random date of 9/14 – Discount $114, Full Flex $335, First $435

    I’m not a AS flyer so I’m not versed in what is upgradable and what isn’t, but I think the price is fair and if people are buying first class tickets good for them. You want first class then buy it. And if your company doesn’t pay for it, then c’est la vie. Mine doesn’t either and I deal.

    • Frank says:

      I’m the same person.

      You ask a good question: why should my free upgrade outweigh a non-elite traveler’s paid upgrade? More broadly, what you’re really asking is, why should any airline offer any free upgrades to elites instead of taking whatever marginal dollars they can for those seats from non-elites? And the answer is pretty simple: for most airlines, including AS, they’ve done the math and accumulated the experience to believe that they more than recoup any lost marginal revenue by increasing loyalty among their elites. In other words, better to keep a $20K/year flyer happy than to get $50 from a 1 trip/year leisure traveler. Now, AS hasn’t abandoned this philosophy. In practice, it’s still fairly easy to get upgraded on any fare on West Coast flights. And in theory, it’s possible to get upgraded on any fare on any flight. But the way they’ve structured things, and continue to do so, it’s essentially impossible to upgrade to Hawaii and difficult to do so on transcons.

      You point out an example and then say, “you want first class then buy it”. Sure, except here’s what AS says on their website: “Unlimited** Complimentary Upgrades anytime on qualifying fares (booked in Y, S, B, M, H, or Value and Full Flex fares), or 72 hours prior to departure on other fares. Qualifying Mileage Plan number must be in the reservation.” (The ** = “subject to availability”.)

      There are certainly airlines out there who don’t upgrade their elite customers. For example, if VX upgrades their elites to F, I’m certainly not aware of that. Fair enough. I don’t fly them as a result (well, that and their sparse route map). But to their credit, they don’t tantalize elites with upgrades that are rarely available on many of their routes. They just don’t offer them in the first place. AS wants the benefits of attracting high-volume flyers by promising unlimited complimentary upgrades, but then they want to maximize their revenue in such a way that makes it very difficult for those elites to obtain upgrades on the routes on which they’d most desire them. That’s called having your cake and eating it too.

      • Jason H says:

        Frank/frank. Let’s be frank. HAHA! Sorry. I couldn’t resist. I told a woman I knew by the name of Ann once, “Ann, let’s be frank.” She didn’t think it was funny. Oh.. yeah.. Alaska… right. Read on.

        I hear what you are saying. Really I do. I was Gold with DL and Premiere Exec with UA (though I’m now nothing on everyone). I’m not arguing over $50 one-way. That is indeed silly. However at the same time if a non-elite purchased a $435 o/w DEN-SEA instead of the $114 why should an elite be more deserving of the seat because they fly a lot? Yes they may spend more over time, but if AS can capture enough non-elites paying F fares that adds revenue to the bottom line and in the long run helps elites since the airline has the money to keep marginal routes open.

        Your quote from the website says it all. “Subject to availability.” It doesn’t say “We promise not to maximize revenue in order to get you an upgrade.” Though when I was flying DL a lot I wish that was the policy.

        AS has to walk a fine line. They don’t have the large capacity planes UA and DL have, but they still need to generate enough revenue to make the network profitable. Does it cause issues with elites? Yes. So did DL’s creation of a diamond status. In the end though these are the slings and arrows elites suffer for the continued operation of their airline.

        I personally am annoyed at UA because of their new upgrade policy. When I go to purchase a first class ticket they are soldout. Why? Because they complimentarily upgraded a bunch of GS and 1K members and filled the cabin. Meaning as a last minute buyer I get a middle seat in coach while paying a first class price. I have no loyalty to UA for just that kind of sillyness. It’s a tough world no matter what you do as an airline.

      • Fred says:

        Another thing is that even before first class prices were lowered, first class often sold out on transcons and Hawaii flights anyways. With a relatively small first class cabin and first class award tickets, it would be very hard to get an upgrade on DCA, EWR and Hawaii flights anyways.

      • I have no brook with AS maximizing revenue.. more power to them, it’s their airline and they deserve to do as they please. I’m only saying I have choices to make and I’m going to maximize my opportunities and minimize the inconveniences I have to put up with. At some point if my options are better served elsewhere.. I have colleagues who have similar status and are upgraded 70% of the time on other airlines.. I may consider moving on.

      • CF says:

        A lot of good discussion here, but just one minor thing to add, Frank . . . Virgin America doesn’t have an elite program, so no upgrades there. They do aggressively sell upgrades on the day of departure.

        • Frank says:

          CF, thanks for the clarification. I was trying to say the same thing as you when I wrote, “if VX upgrades their elites to F, I’m certainly not aware of that”. But I didn’t realize they don’t even *have* elites in the first place.

    • FYI my last SEA to DEN fair (early July) was nearly $400 and I wasn’t upgraded to first.. I did have an exit row though which is ok by me.

  8. On the surface, it seems better to sell a few seats at lower fares flying them around empty while generating nothing. But I realize there has to be a balance. I know I’ll upgrade if the price is right. I flew Midwest (when it was Midwest) over America West more than once when I could get a more comfortable seat at what I considered to be a reasonable fare. I was willing to pay about 20 to 25% more for the privilege, and I did, more than once. At the time, America West’s fares for a comparable seat were much higher. So to me, it was a no brainer. And my home town airline lost some business. It didn’t seem to hurt them too much. They’re still around (obviously as US Airways). Midwest is gone. Maybe that says something about human nature and the nature of this question.

    Based on the above and from what I read, I’m probably in the minority. I’m not sure my behavior is widespread enough for airlines to profit from it. I’m sure it’s different in different markets and for different stage lengths. I’ll tolerate almost anything for an hour or two. But past that, I’m willing to pay more (within reason, and that’s the tricky part) for a more comfortable seat.

    So, on balance, I like Alaska’s approach.

  9. SuperDash says:

    I think AS has done a nice job on FC pricing on the long haul. They don’t have the international biz class passengers like the others do, so they price appropriately. However as a Gold they is no chance in $&@# that I will get a comp upgrade. AS is going to make that harder next year when they limit upgrade to certain fare classes when using the Gold certificate. Does this make me less loyal? Am I entitled to first class? Well I look at it this way. I want my favorite airline to make money. Because if they do, they will continue to fly nonstop to a bunch of places I like. While I would love the upgrade I want my airline to be around. If anything Alaska, lower that Denver fare. $150 ain’t worth it for a 2 hour hop (no wonder I get upgraded on that route).

  10. It’s beginning to sound like some people think airlines only have a first/business cabin for people to upgrade into and not for the airlines to sell seats in those cabins.

    If that were true, then they wouldn’t publish First and Business class fares now would they.

  11. It’ll be interestring to watch AS work to retrain their passengers.

    Although, if they can actually get F to be profitable, do you think they’d expand the number of seats?

    • CF says:

      I imagine that is something to consider. To be fair, it’s not a cheap thing to expand the First Class cabin, but if it works well and pulls its weight, then it might be worth doing.

      I think this is something that United is considering right now. United historically has fewer First Class seats than American and Delta on its Airbus fleet (the 757 is an anomaly). So I have to think that the new mgmt team is trying to figure out what to do about that (if anything).

      • CP says:

        I am fascinated by this question at United. If you take the A319 and 737 as equivalents, the CO first class cabins are much bigger, and hence upgrade availability is improved (for example, I can’t tell you how many times I’ve missed an upgrade on UA by one or two seats, meaning that I would have gotten the upgrade on CO with a bigger cabin).

        I get why UA went with small cabins given E+, but it becomes a big consistency issue as the fleets get mixed. I suppose we’ll see the answer when the first former CO 737 gets E+ in 2012.

      • Frank says:

        CF, in addition to expanding F, I’d like to see AS consider the equivalent of UA E+ / B6 EML / VX MCS. If they had more F seats for sale / upgrade, or if they had a front cabin section with more legroom for their elites (or non-elites who pay for it), that would change the equation fairly dramatically.

  12. BW says:

    The greedy airlines are trying to increase profits again by nickel and diming us for first class!

    But seriously, this is a smart move.

  13. Mike says:

    I guess because the US has a lot more competitors on similar routes frequent flier privileges need to be better.

    May be of interest to some that in Europe, upgrades are not a big part of the package. There is no automatic upgrade given availability at Lufthansa for example.
    Even at their highest status (HON) – all you get is 6 upgrade vouchers every 2 years! (only if they oversell economy do they bump people up)

    So I understand your guys desire for upgrades but seems like the US airlines are bad at expectation management.

    • CF says:

      That’s very true, and it’s one of the thing that makes cross-alliance upgrades so difficult. The US airlines are so liberal with upgrades while partners simply are not. It’s a totally different world.

    • “Expectation management” is an area in which Southwest excells (even though it has no first class / business class offering). That’s part of why it has such a good reputation.

  14. robertol says:

    Brilliant business move by AS. As a UA 1K and AS nobody, I have purchased AS 1st class on last minute trips where the delta between AS F and UA Y was rationalizable (yes, I made that word up). Why risk the UA upgrade lottery on an A319 or A320 when I can have a guaranteed F class seat on AS.

    More generally, expecting upgrades, even as a super-elite is a road to disappointment. If an airline can sell their F class seats, more power to them. If they’re reasonably priced, I may well be buying it.

    • Frank says:

      robertol, where are you flying that you can’t choose UA 757s instead of A319s/320s, and where AS has an alternative? Short-hauls, I suppose, but for all the midcon and transcon routes where they compete, I believe at least some of the UA flights are 757s.

  15. BG says:

    I gladly purchased a First Class seat from SEA to DEN on AS in 2009 last minute when it beat the lowest WN fair by $20 (which included a long layover in ABQ). I enjoyed every bit of the experience. Service was top notch and welcoming. AS won a loyal customer in me thanks to that short flight.

  16. Scott says:

    Paid F is a real winner when you’re traveling with AS companion certs from their credit card.

  17. For those that said they would now fly other airlines just to upgrade, keep in mind the airlines like to do what everyone else is doing. So if the others see AS is actually selling more F seats they could do the same thing and lower First/Business fares which would bring in more $$$$$ in the long run instead of just upgrading lower cabin travelers. It’s all about making money these days.

  18. Sosai X says:

    How’s this for an apples-to-apples comparison?
    Seattle to Newark, unrestricted First Class fares:

    CO: 4x daily nonstops; $1474.00ow
    AS: 2x daily nonstops; $749.00ow

    At about half the cost of their direct competitor, do you REALLY have to wonder why the First Class cabin sells out and comp upgrades aren’t always available? 

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  20. Hunter says:

    Most airlines already do this. DL, CO and UA both advertise at the gate and at check in that you can up purchase an upgrade starting at $150 if there is availability. So, this isn’t a new concept.

  21. Anon says:

    The new concept was pricing F fares at purchase lower. AS has also been selling upgrades at the gate for years (and unlike DL, they’ll sell them to anyone, regardless of fare class).

  22. Frank says:

    This is correct. But due to a variety of factors, including having more F seats on many aircraft (24 on 757s), it’s vastly easier to be upgraded on UA than on AS. As noted, I’d say my transcon upgrade rates are 95% and 40%, respectively. AS might even be lower than that.

  23. Andrew says:

    Your comparison of AS vs. UA is a total apples vs. oranges comparison. Just because UA has more F seats than AS doesn’t at all mean it’s easier to upgrade. UA also has FAR more elite members than AS does…you’ve got to factor that in. You also need to factor in route frequency. Sure it’s tough to upgrade on AS on a transcon, because they only have a couple (sometimes only one) flight a day, compared to a more frequent schedule on someone like UA.

    In my situation, I’m an elite on US Airways. People tell me all the time, “oh, you should switch to Delta, because many of their planes have between 16 and 22 First class seats, whereas US Airways only has 12 F seats on most planes.” Well yeah, that’s true. But Delta also has waaaay more elites than US does. So lets take flying on an A320 on both airlines: US has 12 F seats, DL has 16. So DL has 33% more F seats than US. But I would be willing to bet almost any amount of money that the number of DL elites is far greater than 33% more than the number of US elites. So if you look at it that way, my upgrade chances are actually better on US than they are on Delta, even though Delta has more F seats.

  24. Ryan says:

    Then perhaps UA has too many seats in their first class cabin? I see what you’re saying, but if they can’t sell them then why have so many? Just to upgrade elites? I have a feeling if you went to UA and asked, they probably would rather sell those seats too than use them for upgrades.

    I also would venture to guess (disclosure, I’m an AS employee), that AS has a higher mix of elite fliers to total passengers than most airlines. Sure, UA is a huge airline now, but I know that a huge proportion of AS’s passengers are high up in the elite levels and fly quite a lot. Considering AS also has one of the lowest number of miles needed to qualify for status that gives you upgrades, that can play into it too. AS is 20k miles to reach a level where you can start getting free upgrades while on UA/DL/AA/US it’s 25k. So perhaps on UA there just isn’t as much competition for those open seats as there is on AS either.

  25. Frank says:

    I’m not sure how it can be an apples-to-oranges comparison to contrast upgrade probabilities on two airlines on routes between the same city pair. That seems like the very definition of an apples-to-apples comparison.

    In any case, you’re talking hypotheticals. I’m a UA 1K and an AS MVPG flying out of SEA and have been for years. Anything I say is anecdotal, but my hunch it would be reasonably backed up by other similar elites. I’m here to tell you that as a UA 1K, if I book at least two weeks out, and pick 757s, my upgrade rate on midcons and transcons is 90%+. As an AS MVPG, even if I book two weeks out, my upgrade rate on transcons is probably something like 40%; with midcons, it’s higher, maybe something like 60%, but I have less data on those.

    I don’t know how my data would look if I flew out of a different city. I’ve heard it’s harder for 1Ks to get upgraded on UA transcons out of, say, SFO. Perhaps it’s easier for MVPGs to get upgraded on AS transcons out of PDX. I honestly don’t know. But my data above is true for me and has been consistent for a couple of years or so.

  26. AS has a 16F/144 Y configuration on a 738- so 10% of the seats are first class seats. UA has 24F/50 Y+/108 Y- so 14% F.

    That makes a big difference in clearing and what is available.

    Also, I use my UG certs all the time. Hint: midcons (DFW/ORD/IAH/ATL/AUS). And if you want an easy-peasy comp upgrade into AS F, try flying SEA-LAX.

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