Airlines find retail psychology helps grow revenue and passenger comfort

A better passenger experience is increasingly tied to paying extra, but British Airways (BA) suggests the ingenuity of offering new products to passengers is not always matched by savvy marketing. Case in point: itself.

BA Commercial Director Drew Crawley explains that to boost sales of its premium cabins, the carrier drew on price contextualization as part of a larger study on purchasing psychology (he confesses it “sounds rather grand”).

In the past if you searched BA’s website for an economy ticket it would only show economy fares (above), but last year BA started rolling out a well-calculated change whereby premium economy and business class fares are lined up horizontally to the right of economy.

“If you are in a supermarket,” Crawley explained at the carrier’s capital markets day late last year, “and you have three beers on offer in front of you, the beer in the middle will sell much more because it has two beers, one on either side, in terms of price point, than it would if it was just there as the highest price point with a cheaper beer next to it.”

To increase sale upgrades to premium, straddle the fare on either side: economy to the left, business to the right (above). “Not many people buy the latter but simply by having that column there makes people trade up more,” says Crawley. Search for a premium economy ticket, and BA shows business class and first class to woo upgrades to business. (Searching for business shows business and first, and first only shows first – no option to bring Concorde back.)

“We believe that contextualising how we offer prices to our customers offers a huge opportunity to get them to buy more from us,” says Crawley, forecasting BA could make “tens of millions” annually from this change – and without touching a seat cover or enhancing the IFE, although that is not to underestimate airline IT complexity.

Critical to the up-selling is telling passengers the perks, which BA does vertically, making the business class fare section taller than premium economy, which in turn is taller than economy.

That tactic has echoes in Air New Zealand’s “Seats to Suit”, the unbundled short-haul fare structure the carrier introduced in 2010 to increase competitiveness with low-cost carriers. The four economy fares – Seat, Seat + Bag, The Works and Works Deluxe –are lined up horizontally with a description, like at BA, but all fare options have the same height and width. There are, however, small symbols that increase at the top of each fare description, suggesting the more arrows, the more a passenger gets.

ANZ introduced the fare structure with a 6.4% increase in capacity and received a 10.2% increase in demand. Between New Zealand and Australia ANZ carried 130,000 more passengers in the fare structure’s first seven months while competitors carried 40,000 fewer passengers.

Portugal’s TAP also unbundled its fare structure, but its fare names – Discount, Basic, Classic, Plus and Executive – do not allude to services as ANZ’s first two fare names do. Additionally, a description of fare benefits is only visible by hovering the mouse over the fare name.

The fare structures by BA, ANZ and TAP have their advantages and disadvantages, but are still innovative in the industry. They signal that airlines are slowly realising that they are not just airlines but retailers that sell products.