Qing Li (HKUST) and Christopher Tang (UCLA)
As we played the classic pops on Pandora during our nostalgic moments over the holiday season, Diana Ross’ 1976 Oscar winning song “Do you know where you are going to?” reminds us of an intriguing selling strategy that airlines have been using over the last few years. This strategy is called “blind booking” and is intended to sell unsold tickets at low prices (e.g., 33 euros one-way on Eurowings airlines) without telling the passengers about the actual destination in advance. Eurowings will inform the passengers of the “mystery destinations” immediately after they complete the blind booking process, but other airlines such as Virgin Australia informs the passengers a few days before departure. Recently, a U.S. startup company Pack Up + Go (packupgo.com) offers mystery 3-day getaway package (flight + hotel) in the US for a low price: customers can select a theme but they do not know the destination until a few days before departure.
What is the point of keeping customers in the dark?
Airlines can lower prices to get rid of those unsold tickets, but this selling strategy is a bad idea because it can induce “strategic waiting” – price-sensitive or non-urgent travelers will delay their purchase with the hope to get a good deal. Consequently, airlines will end up selling too many tickets at low prices. Case in point. In the late 70s, British airways offered 90 pound same day standby tickets for unsold seats for flights between London and Hong Kong. After observing many international students and other price-sensitive passengers camp out at the Heathrow airport hoping to get the standby deal, British airways cancelled the standby discount tickets after a couple of months.
Without encouraging strategic waiting, blind booking can enable airlines to obtain a decent price from those customers who are less destination-specific, and force destination-specific customers (e.g., business travelers) to pay the regular price. Without letting customers know of the destination in advance, blind booking is marketed as an exciting and surprising experience at low prices!
Can you have the cake and eat it too?
All customers like low prices, but very few like unpleasant surprises and wish to visit the same old cities again and again. To take advantage of this weak spot of certain customers, some airlines allow customers to exclude cities at a fee. For example, Eurowings charges five euros per city excluded. This “extra fee” strategy enables airlines to charge those fussy passengers a higher price.
As in Dianna Ross’s classic song, “Do you get what you are hoping for?” Sure, with extra fees, you can. Are there other ways to achieve a win-win for both airlines and their customers? Perhaps extra information. For Pack Up + Go, customers complete a survey before they confirm a booking. They will not be sent to places they have recently visited or they will visit in their planned upcoming trips. What about unsold seat information? Suppose Eurowings has 90 unsold seats to Barcelona but only 10 to Vienna, would it reveal this information to customers? Maybe it should. Customers can make more informed choices. They will value the services more and airlines may also benefit from more loyal customers. Will these ideas lead to a win-win? “Do you know?”