United Starts Charging for Upgrades

Some time ago we discussed a potential market for business class upgrades.  Now comes news from United Airlines that they will start charging a variable price for upgrades, ranging from 0 to $500, depending on where you are going, and what class in which you book your travel.  This will be in addition to miles (although 1/3 less than before). A number of my colleagues are grousing about this, but not me.  For one thing, the actual likelihood of an upgrade for other than the top elite has been reducing over time.  While we don’t know what the downturn holds, it was a rare situation when one could find a free seat in either business or first class.  This is particularly true on A320 aircraft, where there are only 8 first class seats.  That says that somehow or another, United was leaving either money or miles on the table.  These days, money is far more interesting to United, and so the charge was to be expected.  The variable nature of the charge leaves United with room to experiment, so that they can still fill seats and make money in the process.  After all, they have to find a new equilibrium.

As for me personally, as I live in Switzerland, and Swiss already charges for upgrades that I can get, this will allow me an opportunity to take advantage of Swiss more without feeling as though I am losing (more) money.  And so right now it seems like a win/win.  It does pose a question for others, particularly companies that have been relying on their employees’ largesse for transatlantic upgrades.  In a downturn, it is unlikely employees will make a big stink.  Wait until the upturn, however…

Final Thoughts on Airline Upgrades

As we discussed, customer loyalty is worth something to airlines.  They spend billions of dollars worth of free services each year in order to maintain that loyalty, and their strategic alliances are intertwined with that customer loyalty.

And so let’s look at the customer.  Be the customer a frequent business traveler or a casual tourist, one problem that could exist is that he or she may not be able to afford an upgrade if it is somehow connected to actual dollars.  And while in my previous post I suggested that the cost would be in miles, there would be a conversion from dollars to miles.  And so some segment of the customer based could end up unable to participate in the auction because of wealth disparaties.  Such a customer might then be inclined to pick another airline that has a different upgrade allocation mechanism such as what we mostly have today.

That’s the risk.  Is it worth it?