Dynamic pricing: your best or worst friend…
The consensus on points is very simple: they’re complicated. Between finding seats, knowing the amounts needed and the airlines you can use them on, using points is enough to give even the brightest collectors a serious headache. IAG, the parent company of British Airways, AerLingus, Iberia and a major player in the international air travel game has more than hinted at a mercurial at best future for “Avios”, the points currency of British Airways and it’s partners.
This all centers around the amount of Avios points you’ll need to spend to fly. At present: British Airways, Iberia and AerLingus have a perfectly imperfect, simple system for using points. Seats are either available using miles- or they’re not. If they ARE available, there are only two prices you can potentially pay: peak and off peak. If a seat is available, off peak will always be a set number of miles and it’s the same for peak. There’s an easy calendar explaining which dates are peak and off peak, as well. It’s as simple as yes and no- and there are set values for the amount of points you’ll need, so you can set goals and plan. You know first class from London to New York is 68,000 points one way off peak – and you plan accordingly.
Dynamic pricing is entirely different. The number of miles you’ll pay will vary far beyond simple “peak” and “off peak” pricing for a flight. The points you need could vary daily by tens of thousands- for the exact same flights. One day in the distant future it’s 68,000 points, yet tomorrow the same seat costs 680,000 points.
Levels, Layers And Potential Complication
Those in favor of dynamic pricing for using points have one strong argument: people can use points when they want to. There’s more “choice” and less red tape. But it’s not nearly as peachy as it sounds for most customers, or at least the ones who earn a non astronomical amount of miles each year. Rather than seats simply being available or NOT, there will be varying prices to pay in points. Demand will largely drive the price in points, much like paying with cash. The more popular the day, the more points you’ll need. On a day to day basis, prices in Avios points could theoretically range up to 10x more than the previous “standard rate”. Of course, the number of points needed could potentially go down for extremely “off peak” dates too. At it’s best, it could be a two way street. The grave danger here, is that the old, widely accepted rates using points would likely become an increasingly rare treat for customers traveling on Christmas Eve.
Dynamic pricing is often an underhanded way to charge more miles for the things people really want. For example, some might enjoy being able to spend 200,000 miles one way per person for business class to a peak destination during spring break when the same flights in todays system would cost 50,000 points or simply not be available. This system giving increased flexibility, but how many people can realistically do that, especially on an aspirational level?
Alex Cruz, British Airways Chairman & CEO has hinted at this direction before. In an interview earlier in the year, Cruz referenced an example where points would be more like cash- where prices in points would vary, based on demand and other factors. The big issue from a consumer standpoint is that loyalty would be less valuable or at the very least- less predictable. Charging 68,000 Avios miles for a one way first class ticket from London to New York, a rate customers currently enjoy is a dependable way to reward loyalty. But moving to a dynamic system, where rates could jump to 680,000 points for the same one way first class ticket, based on demand or price du jour could cloud that loyalty proposition. It’s really a way to largely devalue miles, under the guise of giving more “choice” with which to use our points.
To be fair: I don’t spend my points on British Airways reward flights with any regularity. I buy cash tickets and upgrade using points, or I spend on partners, like 40,000 points from Australia to New Zealand in business class on Qantas. Lots of people also value being able to take cash off any ticket, through part pay with Avios points. The more you can pay, the better for some people.
Introduction In 2018?
The document, which can be viewed in the “Capital Markets Day” presentation found here, points to an intended target as early as 2018. These changes could be gradually rolled in, or introduced in a sweeping new program. Either way, expect plenty of advance notice to be given. For now, the only programs which offer this narrow, treacherous form of loyalty are found with U.S. airlines – and so far, they’re not very popular. One such program, Delta Airlines has purposely removed their loyalty charts, giving customers no idea what any given flight “should” cost using points. Those in the know can “guesstimate” but the shell game is constantly moving. For now, we can only watch and hope the rates we know today, are still the rates tomorrow…
But Why Do This? You Can Already Use Points For Any Seat…
Here is the big, kicking question: why not just further develop part payment with Avios points? If dynamic award pricing is introduced, it would be almost admirably transparently in it’s negative impact to a perfectly imperfect program for using Avios Points. Why? Because a flexible option to use points whenever, on any ticket already presently exists. If availability for traditional methods of using points does not exist, anyone can presently apply points in varying sizes toward a paid ticket using “part pay with Avios” at check out. On these tickets, unlike tickets acquired purely using miles, these part payment tickets earn points and elite status points, while allowing total flexibility. Introducing a “more flexible” system, when this already exists- is nonsense.