As airlines profits increase, carriers have stopped giving away so many first class, business class, and premium economy seats, preferring to sell them, sometimes at discounted rates.
But while they have been creative in monetizing premium cabins, many carriers have avoided auctions, perhaps thinking travelers might be turned off by the process, or that they can earn more revenue in other ways.
That’s beginning to change, mostly outside of the United States, but also at Hawaiian Airlines, which recently announced it would work with a company called PlusGrade to manage auctions for unsold first class seats, and at Virgin America, which works with PlusGrade and another company called SeatBoost. Neither Hawaiian nor Virgin America offers as many free upgrades as American Airlines, Delta Air Lines, and United Airlines, so auctions allow them to profit from seats that might otherwise go empty.
“It’s not something that is earth-shattering and material to the financial results, but airlines remain a relatively low-margin business and this is an opportunity for us to enhance the revenue we generate from the cabin real estate we have, and an opportunity for our guests to customize the experience in a way they can find valuable,” Peter Ingram, Hawaiian’s chief commericial officer, said in an interview.
The technology Hawaiian and many international airlines use does not produce a true auction. Instead, airlines generally contact passengers three-to-10 days before departure, and ask them how much they would be willing to pay for a business class or premium economy seat. Later, the system accepts or rejects the bid depending on parameters set by the airline. It is an automated process, similar to what Priceline implemented years ago for hotels, and price fluctuates according to demand.
“The highest bids win,” said Jaime Fraser, a spokeswoman for Virgin Atlantic Airlines, a PlusGrade customer.
PlusGrade says more than 50 airlines use its technology, though many only make the technology on some flights. Its customers include Lufthansa, Qantas, Aeromexico, Air China, LATAM and Air Lingus. American Airlines tried the service in 2013, but dropped it after its merger with US Airways and does not plan to return, an airline spokeswoman said.