Alex Tabarrok writes about GetGoing.com, the website that has you pick two destinations and they book you non-refundably into one of them. It’s a price discrimination trick, they should be able to sell you cheaper tickets because you’re the most price sensitive kind of consumer — not one booking based on destination (since you don’t even have final say over that destination), but one truly booking on price.
To maximize profit, airlines want to charge higher prices to consumers who are willing to pay more (inelastic demand) and lower prices to those who won’t buy unless the price is low (elastic demand). In essence, this comes down to charging business travelers more and leisure travelers less. In our textbook, …Business travelers, for example, are more likely to want to travel at the last-minute so airlines give discounts to those who book several weeks in advance. Business travelers are also less likely to want to stay over a Saturday so a Friday to Sunday flight is cheaper than a Monday to Wednesday flight.
Despite all the press, including this Sunday New York Times piece, the idea really isn’t new.
The company aims to help airlines fill empty seats, which are scarce on some routes but still average nearly 20 percent of the tickets a carrier could sell. GetGoing promises savings of up to 40 percent off published airfares, but the coin flip reassures the airlines that they are giving these discounts to leisure travelers, not business travelers who would pay a higher price because they have to fly.
“What’s really key to the airlines is discounting seats to the right people,” said Alek Vernitsky, GetGoing’s chief executive and one of its founders. “By asking people to select two places they want to go and flipping a coin, we are communicating to the airline we just found a discretionary customer.”
The Times also highlights Priceline and Hotwire, where you don’t get to pick your flight times so it doesn’t work for anyone but the most flexible sort of traveler. And that’s certainly one part of extreme price discrimination.
And I’d note that GetGoing.com doesn’t really promise that they’ll get you extreme discounts, promising ‘up to 40%’ leaves them a lot of leeway. Plus it shouldn’t be all that hard to game them when you have to pick one of two destinations — if you can pick a destination that’s hosting a major event (like the Computer Electronics Show or Super Bowl) and one that isn’t guess which one you’ll wind up getting?
But even the idea of unknown destinations as a price discrimination tool isn’t new, and dates back at least to the early 1990s (it could go back much farther, that’s just where my awareness of such things stops).
Qantas and defunct Ansett Australia used to offer ‘mystery flights’. At least in the case of Qantas they told you the day before travel where you were going, and you would fly out and back the same day — usually with several hours in a city but the amount of time there wasn’t guaranteed. They would figure out what roundtrip flights had excess seats they weren’t going to sell, and that’s what you’d get — pure revenue at the margin for passengers who really didn’t much care where they were going, they just wanted a day adventure.
Air New Zealand offers Mystery Breaks which pairs mystery flights with 1, 2, or 3 nights’ accommodations (there’s a basic and deluxe version so you pick the general quality of your hotel).
Of course the idea of not knowing your destination in advance isn’t just a revenue management trick for the travel industry, it’s something with a certain amount of allure and not down under, there’s even a travel agency that specializes in mystery trips, you give them general parameters and a budget and they come up with a trip you’ll enjoy — not only don’t they trouble you with the details, they don’t even tell you the details!
Without bigger discounts that GetGoing seems to offer they’re unlikely to generate much business, the discounts most likely need to be actually substantial and not just large relative to a baseline of the most expensive alternate flights. Even Priceline found that the name your own price model for airfare turned out not to be their bread and butter (they didn’t really work well in mortgages or gas, either). Hotel bidding worked better, but the traditional online travel agent model has been more their focus in recent times.
And without tons of unsold inventory it’s harder and harder to come up with deals to match with consumers.
Nonetheless it’s an interesting intellectual exercise, even if my bet is that GetGoing deosn’t ever really get going.