Buying a plane ticket can be a frustrating experience. As a former airline pricer, I can’t tell you how many times I’ve heard people complain about how often fares change and how there seems to be no logic involved. Why do they pay more than another person for the same seat?
It makes perfect sense to me, of course. Airlines price their seats based on supply and demand, so if you book early when the plane is empty (high supply) and you travel on an uncrowded day (low demand), you’ll likely find the best price. I’m simplifying, of course, but you get the idea. People hate the lack of transparency and the fact that they don’t seem to get more for paying more.
It certainly doesn’t help that airlines use the same systems to sell tickets that they used 30 years ago. Those systems are very rigid in what they can and cannot do, so even though there are plenty of great ideas out there, very few can be implemented without major changes.
That’s where Air Canada has excelled.
Why Air Canada? Well, it probably helps that they have the lion’s share of the market up in Canada, so they can experiment without nearly as much consequence as someone down in the US. Still, they’ve done some very innovative things that have made them a model in terms of revenue generation.
First, start with their new tiered fare structure. They have five different fare groupings. The lowest, called Tango, is bare bones. You only earn 50% of the miles you fly, there are change fees for everything, and you have to pay $12 just to get an advance seat assignment. That is followed by Tango Plus, Latitude, Latitude Plus, and finally Executive Class (which is their premium cabin). For a full explanation of the difference in classes, go here.
It’s rare in the airline world, but with these fare groupings, you can now see what you’re getting by paying more. Of course, this only works if you have the right interface for customers, so Air Canada did a major makeover on their website. If you searched for a flight from Vancouver to Toronto, for example, here is what you would see.
The first thing you might notice is that it looks a lot like the Southwest website. It shows you every available flight and then which fare classes are open for sale on those flights. Even better than that, they have tabs at the top showing the lowest fares for five days on either side of your chosen date, just in case you’re flexible. It makes it very easy to get a good picture of the fare landscape.
One thing I like as a former revenue guy is that they change fares within each fare group. You may have to squint, but look at the first flight as compared to the second flight. In Tango, you’ll pay $168 for the first one, but $194 for the second. Even within each category, they’re looking to match supply with demand. It may still hearken back to the black box idea of revenue management from the customer perspective, but it’s a good middle-ground that offers good transparency for the customer as well as the ability to revenue manage for the airline.
Now, in their latest move, Air Canada has taken things one step further to actually creating a world of a la carte pricing. So now, let’s say you want the Tango fare. When you select it, you’ll go to this screen.
This was just launched last week, and I think it’s great. The idea is to get to the point where every person can pay a different fare and actually feel good about doing so.
You don’t care about earning miles? Well, save $3. Air Canada will give you the discount so they don’t get the liability of those miles on their books.
You don’t need to check bags? Great, save $4 for not using the resources to get your bag in the belly of the plane.
Do you know you won’t change your flight? Excellent, save $6 on that one as well.
The best part about this is the presentation. US carriers will often tack on fees for various things. Air Canada could easily have said that there is a $4 fee for checking bags, but instead, they give you a $4 discount for not checking bags. It’s the same thing (assuming they can bump the base fare up $4 – something they can probably do in Canada), but the customer ends up feeling good about it.
So is this the future of ticket sales? I really hope so. It makes a lot of sense to tailor tickets to each person’s needs if you can. Let each person choose what they want and the buying process becomes much more pleasant as well as transparent.
Will the US carriers try this? Probably not in the near future, at least not the big guys. First, it requires a big change on the tech side. More importantly though, if competitors don’t go along with it, there is a lot of risk involved. If there was one big airline I’d expect to give something like this a shot, it’s US Airways since they have been known to take risks, but most of the others are probably too conservative to do it right.
In the meantime, Air Canada will continue to innovate. They’ve announced that they’ve signed on with ITA Software to replace their reservation system internally. That new generation software can only open up additional opportunity to improve the purchase process for everyone.