AirKarp

Airlines need to master the art of the upsell

by Aaron Karp
Nov 06, 2017

As airlines continue to roll out product segmentation—offering passengers tiered fare options starting with basic economy—upselling is becoming a critical element of the air transport business.

Airlines offering basic economy want to convince passengers purchasing the lowest fare level to pay more at a later time to move up to standard economy. With more and more premium economy seats on aircraft—Delta Air Lines, for example, has 48 “premium select” seats on the Airbus A350-900 it has just put into service—airlines want to entice standard economy passengers to move to premium economy. And perhaps a few premium economy passengers will switch to business class.

This is not the traditional “upgrade” people think of—using frequent flyer status to move into business class if seats are available. This is pure upselling, and airlines need to determine the best way to get passengers to pay more than the original purchase price to move up a tier.

As I detailed previously here, US majors offering basic economy fares will be happy to see as few passengers as possible actually end up as basic economy passengers when they board the aircraft. American Airlines is seeing an upsell rate of 50% on basic economy tickets and Delta has said its upsell rate from basic economy to standard economy is “high.”

When should airlines offer the upsell? Obviously, those buying basic economy tickets are the most price-sensitive passengers and initially made their purchase based on price alone. In other words, the day of purchase is not the ideal time to offer these passengers an upsell. Many airlines are offering an upsell at check-in, which may work with basic economy passengers who could be just realizing the restrictions that come with basic economy. But it may not work with standard economy passengers, who aren’t being restricted regarding seat selection and carry-on baggage.

Lufthansa has experimented with approaching economy passengers at airport gate waiting areas and offering them the chance to wear a virtual reality headset in which they can view the German carrier’s premium economy product on long-haul international flights. This was trialed with passengers traveling from the US to Europe last year and in Frankfurt during the first half of this year. Lufthansa is now considering rolling it out at select locations in its network.

“We showed passengers premium economy in a 360-degree virtual reality video,” Torsten Wingenter, Lufthansa Group’s senior director of digital innovations, told reporters during a recent briefing in New York. “We say, ‘By the way, we still have premium economy available,’ and people are upgrading … It doesn’t work at check-in, where there is too much stress. At the gate it’s a totally different situation. People are relaxed, looking forward to the flight and, particularly if it is their return flight, already know how much they’ve spent for everything on their trip. They say, ‘$300 for this is something I’ll do for myself. I want to sleep on the flight’.”

Wingenter told me he could see the practice of using virtual reality at airport gates for upselling purposes becoming “very widespread” eventually, but conceded that “today the structure is not set up” for doing this at most airports. It also requires having staff available to approach passengers and training those employees to do so.

“We’re looking at which markets have the infrastructure to do this,” Wingenter said. “We also need to talk to the airports. But it’s very promising. We’re very happy with the results of the trials.”

ICF consultant Mark Drusch, who worked as an executive with both Delta and Continental Airlines, recently suggested to me that airlines could offer passengers a premium economy upsell deal for their return flight “while you’re stuck in that coach seat going over the Atlantic” by sending the passenger an inflight email.

The tiered product approach does indeed serve to capture as many types of passengers as possible. But the tiered approach will only truly be successful if a good number of passengers move up the product ladder after their initial purchase. That means the art of upselling—when, where, how and for how much—is something airlines must master.

Aaron Karp aaron.karp@penton.com

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