This is the first in a three part series looking into airline fare bundles, including the opportunities that exist and what's next for the pricing strategy.
Read part 1: Airline Fare Bundles – A Step to Better Meeting Traveler Needs
Read part 2: Airline Fare Bundling – A Pricing Opportunity
In our new airline world that includes ancillary fees for bags, seats, and other features, travelers can be overwhelmed with choice - in addition to selecting the specific flight they want, they now must decide how many bags, carry-on or checked, which seat, priority boarding or not, and so on.
To help travelers navigate this new world, many airlines, if not most, now offer product “bundles.”
The airlines present a menu of product bundles when presenting flight choices; each fare represents a re-bundling of select ancillary features.
Most airlines present three or four different bundles, or price points, for each flight. Rather than sorting through a dozen or more ancillary features, travelers can with one click easily book a bundle of amenities that meets their travel needs.
22 Different Bundles?
At many recent airline conferences, airline executives and tech suppliers speak of the benefits of such “bundling” for both airlines and travelers. In Miami last year at the Aviation Festival, however, we learned that United has 22 different bundles of fares for use across their large network.
- 7 basic fares (Basic Economy, Economy, Extra leg Room, Economy/fully refundable, Premium Economy, Business and First
- Variations on the above with respect to bags: a Basic Economy may include a free carry-on or not; an Economy fare may include a free checked bag or not, for example
This revelation surprised many airline insiders. Although all airlines seek increasingly sophisticated forecasting and optimization systems, both airline managers and travelers also relish simplicity. Maintaining so many bundles might be burdensome within the airline.
Perhaps more concerning, it may lead to additional customer confusion; the idea of re-bundling, after all, was to make it easier for travelers to book the travel experience they desire. Complexity for the airline and complexity for the customer are both undesirable in a world that is already too complicated.
So, perhaps, United Airlines’ 22 bundles require a bit more explanation.
Understanding United's Bundling Strategy
United’s 22 bundles doesn’t mean that 22 bundles are displayed for each flight. Most flights continue to offer customers choice from only three or four bundles: Economy; Economy (fully refundable); First; and, only sometimes, Basic Economy. [Extra legroom, Premium Economy and Business are only available on select aircraft in select markets].
Twenty-two bundles means that the bundles can vary more across markets even if just four are displayed in any one search. For United Airlines, “Basic Economy”, when it’s available, is always the lowest fare but doesn’t always include the same amenities (or lack of amenities).
“Basic Economy” normally means passengers cannot carry-on any luggage; on very long haul flights, however, it may include one free carry-on. “Economy,” too, has variations across markets. In some markets, Economy includes a free checked bag while in others all checked bags have a fee.
"The above bundling strategy builds on traditional airline revenue processes that recognize how the needs of passengers varies across flights."
The need for additional complexity in United’s bundling strategy is at least in part due to their extensive network.
From Chicago, their largest hub, they serve overwhelmingly business markets like Indianapolis and New York-Laguardia (where Basic Economy is generally not offered), tourist destinations like Fort Lauderdale and Orlando, international vacation spots including Saint Maarten and Cancun, and long-haul international locations including London, Munich, Rio de Janeiro and Tokyo.
United competes against low cost carriers in some of its markets (who generally charge a fee for carry-ons) and against legacy carriers (each with a variety of bundles); some markets, on the other hand, have very little direct competition.
The above does not represent “personalization,” as now envisioned in the industry. All customers see the same options at the same time.
Instead, the above bundling strategy builds on traditional airline revenue processes that recognize how the needs of passengers varies across flights. Flight-specific market differences and varied competition come with differences in passenger preferences for amenities.
United appropriately adjusts its product offerings along with its fares across markets. More airlines should explore such variations in “bundling” amenities across their networks.
Tom Bacon is an airline industry consultant based in Denver, Colorado. With 30 years experience in a variety of travel companies and business situations, he has a track record of dramatically improving profitability through innovative revenue strategies.