United uses dynamic pricing to shore up Economy Plus revenue

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After pioneering a version of the ‘premium economy’ concept in the US market roughly 15 years ago, United Airlines is fully accustomed to pricing its extra legroom product based on travel demand patterns rather than keeping prices static. But the US major continues to  “tune-up technology” , says CEO Jeff Smisek, as it looks to support increased sophistication in managing various products now sold outside of the ticket price, including premium economy, priority boarding and food and beverage sales.

Smisek says Unitedʼs Economy Plus seats are now priced by “specific seat, by specific location on specific aircraft for a specific time of day and specific day of week”. On certain aircraft, United has up to 16 different pricing options for Economy Plus, he explains. “Thus, consumers who prefer an aisle seat will select and pay for that”, and passengers aiming to save a “little money” can select the middle seat.

During the first quarter of this year United chief revenue officer Jim Compton remarked that initial results from the carrier’s use of the “real-time positioning [pricing] tool” show more than a 15% increase year-on-year in ancillary revenue.

United shored up its dynamic pricing strategy this year as it reached agreements with major global distribution systems (GDS) to list its Economy Plus inventory after taking a hiatus in 2012 when United-Continental cut over to legacy Continentalʼs Shares passenger service system. The carrier has reached deals with Amadeus and Travelport to “begin altering Economy Plus” to “improve access to ancillary products for some of our most valuable customers by distributing these products through the channels most corporate customers use,” says Compton. United reached a similar deal with Sabre in 2013.

But even as United presses forward to maximise Economy Plus revenue, technological hurdles remain for corporate travel agents to fully exploit premium economy sales. CEO of technology supplier Farelogoix Jim Davidson recently highlighted the difficulty of selling extra legroom products from a “green screen”.

GDS companies do appear to recognize the need to improve the workflow for travel agents to manage premium economy bookings, concludes Atmosphere Research Group travel analyst Henry Harteveldt, who notes that these companies have unveiled platforms to make it easier for agents to purchase seats featuring extra legroom.

United, meanwhile, continues its “technology tune-up” through a roll-out of the first phase of its new website this summer. Compton boasts the changes should “provide improved ancillary revenue opportunities and a better customer experience and result in lower distribution cost as more of our customers use united.com”.

The move to match premium economy pricing with demand is sweeping across the industry landscape as airlines solidify their respective merchandising strategies to further maximize ancillary revenue.

4 Comments

  1. Pingback: United uses dynamic pricing to shore up Economy Plus revenue | Runway GirlRunway Girl : Pricing News

  2. Ray Sharradh

    Whether you call it “demand pricing”, “monetizing”, or this latest one, “dynamic pricing” – call it what it is – “pay for play”, or more aptly, “gouging”. Don’t forget that while the airline is also maximizing its profit margin, it adds to that profit margin to bleed each passenger for every penny, and then spend as little as possible in providing the passenger anything more than a seat and seatbelt once on board. The passenger-airline relationship is now entirely adversarial, with any demand or expectation made by the passenger a potential threat to the airline’s (gouged) profit margin. So, Mr. Smisek, please save your platitudes and assorted other double-talk and quit telling me how you’re gouging me, all in the name of providing me more choices. I was once a 1K frequent flyer. However, I’m so disgusted with rude airline employees, rude cabin staff, rude security agents – I refuse to spend my money and subject myself to the abuses of the current aviation industry business model.

  3. JoEllen

    I particularly love the psychobabel presented; always with the twist of using the terms “our most valuable customers (want this) ” or “these are the choices that our customers want”. This makes anyone else seem less than “human” if they don’t WANT these things. Really ?……and what happens when you buy that extra leg room or premier (first) boarding in advance, and the flight cancels? Try to match that economy plus exit row you had on the next flight that is already full, and the flight after that and all the domino effect of delays, misconnects and cancellations. Equally irritating will be the trouble of getting a refund.
    Passengers need to “silently” boycott by NOT buying these seats and amenities. See what happens at the ticket counter and gate when no other seats are available but the ones with extra leg room – Just refuse to pay – the airlines HAVE TO give you these seats by default.
    United is not immune, though, Delta will soon be offering extra (complimentary) amenities in their extra leg room section in coach on their transcon flights – food, drinks, blankets, pillows. So, for example, the people “lucky” enough to default to rows 7-12 with the extra legroom will get these other amenities while people in row 13 and behind will just get to look at them be “served” in the same cabin while they nibble on pretzels and 1/2 can of soda. Does anyone else think this will create a “class” division with arguments and issues being voiced in flight ? The people who think of these things and expect them to be “accepted” and “wanted” are nuts.

  4. Mike

    Pricing its extra legroom product based on travel demand patterns…increased sophistication in managing products…improve access to ancillary products…product…product…product. Don’t you geniuses in the airline industry get it? YOU’VE TURNED COMMERCIAL AIR TRAVEL INTO AN ORDEAL. WE HATE IT. I’m over six feet tall. WHY IS IT NOT A MINIMUM STANDARD THAT EVERY PERSON WHO BOARDS THE AIRCRAFT GETS A SEAT THAT DOES NOT LEAVE THEM ABSOLUTELY MISERABLE AFTER AN HOUR OF SITTING IN IT? I refuse to pay for your “extra” leg room. Get it? I’d rather sit there for hours and be PISSED OFF at your horrible, horrible service standards (along with countless others on the plane) than knuckle under to your extortion. There are a lot of people in the flying public who refuse to concede that the “new normal” is in any way acceptable.

    If you try, I’m pretty sure you can figure out a way to monetize the space in the wheel wells by squeezing a couple of passengers in there too.

    Disgusting.