Airline Fare Bundling – What’s Next?

This is the third article 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, 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.

As most carriers today, United displays 3 or 4 different bundles for each flight. But, across its broad network, United now has 22 such bundles.

United varies the amenities in the bundles in some markets in recognition of different customer needs in long hauls vs. short hauls, for example: Economy may include a free checked bag in one market and not in another.  

"As market needs differ by market – and by customer segment – then airlines may use United’s approach in constructing their own more finely-tuned bundles without adding complexity to the individual customer booking process."

United also, however, uses their menu of bundling to implement pricing variances across markets – the “Economy – refundable” may be anywhere from $50 to $1000 more than the “Economy - non-refundable.”

The differences in price premiums across products reflects United’s view of “willingness-to-pay” for amenities in different markets.

United’s use of 22 bundles across its network is largely hidden from customers. Since United continues to display only 3-4 choices in each market, customers are not confronted with extra complexity.

In any particular market, it is clear what amenities are included in each bundle and the fare differentials can be compared easily against the base fare. As airlines continue to explore variations in bundling, they are likely to follow United in keeping choice simple for travelers.

As market needs differ by market – and by customer segment – then airlines may use United’s approach in constructing their own more finely-tuned bundles without adding complexity to the individual customer booking process.

Each customer may see only 3-4 options even if the airline, behind the scenes, has constructed 50 or even 100 or more new “bundles.” There is no technical limit on the number of bundles.  

New dimensions present opportunities for refined bundling at United and at other carriers:  

• Inflight amenities (food, beverages, wifi, etc.): On longer haul flights, more inflight amenities may be included in the Economy fare or a higher premium applied for bundles that include them.  

• Days before departure: There are large differences in needs and price elasticity between travelers who book at the lowest fares more than 30 days in advance and those who book the high fares a few days before the flight. There could be different bundles and fare premiums based on days-before-departure.

• Purpose of trip: Should a couple booking a weekend trip see different bundles than an individual business traveler? Or a family taking a long vacation? Most bundling today is not well targeted to the needs of different customer segments.

United’s initiative is not yet the “personalization” many airlines seek. But it does offer a lesson for “personalization” as it develops over time. United reminds us that even individual travelers have different needs and different “willingness-to-pay” based on the type of route and different purpose-of-travel.

Optimal “personalization” will likely vary product offerings and price points for the same traveler based on where and when he is traveling.

Even before real “personalization,” United’s approach is better suited to customer needs than a simple system-wide branded fare offering.

United recognizes the differences in customer needs across its broad network. As airlines continue their work to better meet customer needs, it is likely that more airlines will adopt similar policies.