Gulliver | Come on forward, the price is right!

More airlines are auctioning off seats

By B.R.

AS LONG-TIME readers of The Economist can testify, this newspaper likes auctions. For economists, it is the best solution to most problems. It is more elegant than the other two main forms of setting a fee: haggling and menu pricing. The former is inefficient because the seller might not be negotiating with the person prepared to pay the most. The latter will be inefficient unless the seller has exhaustive knowledge of the supply and demand conditions and can quickly adjust his prices accordingly.

Airlines generally take a version of the latter approach. They use dynamic pricing that calculates demand for seats on their planes and updates the fare accordingly. Generally, their algorithms do a pretty good job. Even though the price of the same seat on a flight can vary greatly over the period it is on sale, the average plane is around 80% full.

But more and more are also having a look at auctions, particularly for those looking to upgrade their seats. Some 30 carriers around the world have tried it out. The latest is Singapore Airlines, which has unveiled a new bidding system in which economy-class flyers can bid for a swankier seat in premium economy. Passengers receive an e-mail around a week before the flight asking whether they would like to bid for an upgrade and setting a minimum price. This can then be changed or cancelled any time until 50 hours before the flight, when the “winners” are informed.

Premium-economy seats offer a few benefits over the standard ones, such as more legroom. For an upcoming one-way flight between London and Singapore, for example, the cost is around £450 ($593) more. However, they are not always full. So sometimes airlines will simply shunt a few lucky passengers forward from the very back of the plane. But that is becoming a less common practice. As we have discussed before on this blog, many carriers now prefer to keep those hallowed seats empty, and in full view of the doleful souls who have refused to stump up the extra, pour encourager les autres.

Auctions should alleviate this problem. Assuming it is done efficiently, the issue of empty seats accruing no extra cash should disappear. For those who consider premium economy essential—the long-legged for example—the marginal saving of going through an auction will not be worth the risk of missing out altogether. For those who have always thought that the benefits do not warrant the extra expense, there is a chance to try their luck with a price they do consider to be worth it.

For the best chance of a successful bid, here are three tips from Richard Kerr, who writes for “The Points Guy” website.

There’s no definitive strategy to ensure you are the winning bidder at the best price. However, these tips should improve your chances:

1) Use ExpertFlyer or a similar tool to see how many premium class seats are still available on your flight.

2) Follow this equation for a bid price: Calculate the regular cost of a business-class seat. Subtract what you paid for the economy fare, and aim for around 20 percent to 40 percent of the remaining price.

3) Bid slightly above the minimum to beat the crowd, since most people will choose the minimum.

Happy bidding.

Correction: This post orginally described Richard Kerr as the "The Points Guy". He is in fact a contributor to the Points Guy website. Sorry.

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