Tuesday, April 30, 2013

Auctions for Upgrades

Many airlines have long had mechanisms for using, say, frequent flyer miles to upgrade from coach to business or first class that typically operated just before boarding. Now, 10 airlines are using the PlusGrade system for online auctioning of these seats.
"You can buy the cheapest ticket and still have a chance of sitting in business class," said Danny Saadon, North America vice president for El Al Airlines, where the average winning bid for a business-class upgrade is $800. That's a deal when the airline's business-class tickets cost anywhere from $3,000 to $10,000 more than coach.

Not everyone is happy.
Frequent fliers with top-tier status and easy access to upgrades are already complaining that auctions have eroded their ability to snag cushy seats.
Airlines holding the auctions say they take care of elite-level frequent fliers by processing their upgrades before awarding seats to auction bidders.

Doesn't  this defeat the purpose?


  1. PlusGrade is the on-line auction that sells first-class or business-class seats on airline flights. As of December 12, 2014, over 25 airlines were utilizing PlusGrade for non-elite travelers to purchase available seat upgrades (Lawrence, 2014). The auctions are conducted with non-elite travelers through a sealed-bid first price whereby the airlines have reserved pricing and restrictions on who can purchase the upgrades (Froeb, McCann, Shor, & Ward, 2014, 2014, p. 216).

    The program is a win for airlines, as they are practicing price discrimination with a twist. Lower-fare passengers are able to purchase upgrades for-less-than the full, upgraded seats’ original prices. The result is that the airlines are able to fill empty seats and generate more revenue. Since the bidding is usually not opened until a few days before the flight, the full-price first-class or business-class seats that are needed have already been purchased, and there is only extra capacity being sold. These open seats then can be sold by the auction, and the original seat of the lower-fare passenger becomes open. If the airline does not fill the lower-fare seat, it is still ahead because it received the auction upgrade price (less the half-paid to PlusGrade). If the lower fare seat is resold, then this is pure marginal profit over the original booking. Of course, passengers gain by acquiring a more cushy seat and better flying service. This is an example of Adam Smith’s invisible hand (Econlib.org )

    Higher-fare passengers (elite or frequent flyers) are eliminated from participating, because they are blocked from the auctions. So, they are forced to pay their normal fares to enjoy their seats. If they are willing to pay the higher fares, they do get first chance at the upgraded accommodations. Based upon the auctions only being available shortly before departures, it would appear that this is a viable way to increase airline revenue. The restrictions are numerous, and passengers who are going to bid need to understand the rules that each airline operates under and sites like flyertalk.com can help (Lawerence, 2014).

    Karen Whelpley

    Work Cited
    Froeb, L., McCann, B., Shor, M., & Ward, M. (2014). Managerial Economics: A Problem Solving Approach (3rd ed.). Mason: South-Western Cengage Learning.

    Lawrence, K. (December 12, 2014). Bidding Secrets of Air Travelers Inside. Web. (April 12, 2015). Retrieved from: http://elliott.org/advice-you-can-take/bidding-secrets-air-travel-insiders/ Bidding secrets of air travel insiders by Kent Lawrence | December 12, 2014

    Smith, A. The Concise Encyclopedia of Economic Adam Smith (1723-1790). Web. (April 12, 2015) Retrieved from: http://www.econlib.org/library/Enc/bios/Smith.html .


  2. Your approach to this topic is unique and informative,i am looking free airline upgrades

  3. I will be honest, before chapter 18 I was auction – ignorant. I mean, I was aware of what an auction was; however, I was ignorant as to just how many types of auctions that they are. And I will admit, I am intrigued by the whole concept of the Plus Grade system used for online auctioning for airline seats. Froeb, McCann, Shor and Ward states that oral auction are auctions where “bidders submit increasing bids until only one bidder remain; and the item is awarded to this last remaining bidder” (Froeb, McCann, Shor and Ward). And I feel that the Plus Grade system is a classic example of the oral auction, just only done online. In the Plus Grade system, bidders receive an email notifying that a seat is available to bid on. There are strict terms and conditions that they must adhere to such as (1) you can only place a bid after you have a ticketed reservation (2) there is a minimum and maximum allowed bid per flight segment. You can’t just bid $1 in the hope no one else bids (3) not all routes are eligible (4). bids are per segment and per passenger on your itinerary (5) there are certain time windows in which you can place your bid and (6) if successfully upgraded, most programs give you all the perks and benefits of your new travel class, including lounge access and extra baggage allowance (Kerr). The highest bidder wins the seat. In oral auctions, “since every bidder is willing to bid up to his value, but no higher, the high value bidder wins the item as soon as the second highest value bidder drops out” (Froeb, McCann, Shor and Ward). Because the winning bid in the Plus Grade system is the last holdout until the second highest bidder drops out, it is, indeed an oral – if online – auction.

    Kerr, R. (2015, February 17). Guide to Bidding on Flight Upgrades for Premium Seats. Retrieved April 12, 2017, from https://thepointsguy.com/2015/02/a-guide-to-bidding-on-flight-upgrades/

    Froeb, L. M., McCann, B. T., Shor, M., & Ward, M. R. (2016). The One Lesson of Business. In Managerial Economics: A Problem Solving Approach (4th ed., pp. 18-26). Boston, MA: Cengage Learning.