Alaska Airlines has been perhaps the most aggressive airline using promotions to discount travel and generate sales, with fairly frequent ‘buy one get one’ offers and 10% discount codes.
American Airlines is doing something different. They are targeting discounts to try to drive incremental business. They ran a targeted promotion with discounts some months ago, and now are sending out 25% off codes to some members, including for premium cabin travel (purchase by February 20 for travel by May).
25% Off To Drive Revenue They Wouldn’t Otherwise Have Gotten
The goal of course is to generate revenue for the airline in a time of uncertainty. From a customer’s standpoint if they think they’ll take a trip it could drive them to book it, and airline change fees are in most not relevant – so if plans change, worst case you wind up with an airline credit to use in the future.
American has been aggressive seeking to generate revenue through ticket sales, even where flights themselves are uncertainty, appearing to make schedule changes closer-in than rivals.
Can Discounting Drive Airline Revenue Now?
25% off is a big discount (though less than the implied discount on Alaska ‘buy one get ones’), but will it spur travel that wouldn’t have otherwise happened – or just encourage someone who would have purchased a ticket anyway to buy the same ticket for less? That’s the magic question that determines whether discounting makes sense.
- If the major constraint on travel isn’t price, but uncertainty about where you can go, what you can do when you get there, whether those restrictions will even remain the same between the time of booking and actual travel and concern about health then discounts might not matter much. Back in late March even $13 cross country flights couldn’t fill planes.
- On the other hand most travel now is leisure travel and that’s generally highly price-sensitive. Lower prices stimulate demand, at least to places people want to go (e.g. warm weather beach destinations, skiing, resorts).
A targeted discount helps answer the question does discounting drive incremental ticket purchases? You have a test group (receiving the discount) and can identify a control group out of the rest of your customers and compare the results.
It’s harder to answer answer the question whether discounting drives incremental travel, rather than just driving share shift (discounts luring customers away from competitors) although you can take a stab at that based on looking at the results targeting elite members of your frequent flyer program versus general members, customers in hubs, and relative performance on already competitive routes to give a few examples.
If we see American continue the practice, that will be a good sign that at least price can stimulate demand.