Have you ever wondered about what airline passengers have in common? The truth is – not that much. In fact, recent earnings call held by the United Airlines revealed an interesting trend, namely that 85% of their customers fly less than once a year but account for only around 50% of the company’s revenues.
In simple words, this means that around 15% of all of United’s passengers account for half of its income, and a good portion of this revenue comes from a particular group of travelers – the so-called, frequent business flyers. These people would not only travel more often than the average American but will be more than willing to pay full price premium or economy cabin fares.
Of course, to benefit off this trend, the airline should put most of its resources into making sure this small group of travelers is happy with the company. In recent years, this has led to two strategies; firstly, most of the major US carriers such as Delta, United and American decided to transform their frequent flyer programs to a revenue-based system rather than the old mileage-based one. The revenue system allows passengers to accrue mileage based on the price of the ticket rather than the distance of the flight. The more money you spend, the faster you’ll accrue perks such as free upgrades or reward flights. This could be beneficial if you’re a frequent business flyer but it means that one of the more popular travel hacks – purchasing cheap tickets with itineraries to increase distance – no longer applies.
The second strategy has to do with segmentation and rather, offering specific products to cater to the particular needs of various passengers. Delta, for example, is targeting bargain hunters by offering the so-called Basic Economy option which doesn’t allow you to choose you seat in advance or make any changes to the itinerary, but it’s quite cheaper than the other options. The Comfort Plus package, on the other hand, is more expensive but allows economy flyers to get a taste of the business class experience without paying the full price for it. Moreover, in August 2016, Delta also introduced the Delta One premium cabin which comes with luxury suites for those passengers who truly want to travel with style. The change seems to be a direct reply to the change announced by United Airlines a few months prior to it. They planned to change their premium cabin by introducing a new Polaris Business Class suite.
The statistics released by United Airlines allow experts to catch a glimpse of the intricate workings of the airline industries and to us, the lay people, get a better idea of why companies do what they do. Flying in coach is still an unpleasant experience for most passengers and it’s most certainly an area that companies need to work on but the decisions airlines make are often based on income and can help you understand why certain people (and we mean the frequent flyer passengers) tend to be treated differently than others.
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