Add to all of this the administrative costs to manage this program, and the steady stream of complaints they will get from customers who don’t understand the commitment they made, or had a change in their situation and can’t keep up, or didn't realize that they would lose a flight option by this date, or the many other problems this program will generate. For the business traveler, they will conclude that every passenger they take from Southwest with this program is more than offset by the dilution from their existing customers that now have to pay less to fly. They can generate the same revenue as the leisure subscription with pricing sales, and still benefit from higher prices on the days and times that the market will accept this. This is why Alaska will choose to kill this program after its first year, or modify it significantly for a second year.
The business travelers who step up to pay for the Flight Pass Pro will probably be happy with their purchases because they can ensure utilization of the trips and more than often will save some money versus the rate they would otherwise pay. Or they will find that they aren’t saving much, or maybe even paying more than tracking the regular ongoing fare sales on all the airlines that serve these markets. More common, though, will be people who become resentful of the monthly charges because their initial flying aspirations didn't end up matching with life realities. Some people will buy the Flight Pass subscription and find good value in it, and take all of the trips. They need a close look at their capacity, partnerships, customer offering, and flight schedule and give Californians a reason to choose them over their competitors.
These prices were not brought to Seattle or Portland for a reason, but the creation of this program may ensure that those cities get some value from the competition.įor Alaska Airlines to win in California, they need more than a promotional pricing stunt. American, Delta, and others will be watching this closely too. They likely will help ensure that the prices being paid in the subscriptions don’t seem like a great deal. Southwest Airlines and United Airlines provide the greatest competition, and both carriers will not sit idly by for Alaska to take their customers with these subscriptions. The reason Alaska Airlines launched this program is because they are having trouble getting traction in California. It seems likely that the individuals and businesses that buy the Flight Pass Pro will do it only because they estimate it will save them money compared to what they otherwise would spend. Not all businesses need all of this flexibility, however, so maybe Alaska could have reduced their dilution risk by offering booking up to three days before flight instead of two hours. Businesses will like this and the fares for close-in bookings can get quite high, so the Pro pass provides some price protection. The Flight Pass Pro offers the flexibility of booking a trip to leave almost right away. Still, even these people could likely meet their goals by responding to regular sales rather than commit to monthly payments. For leisure customers, this would likely be a golfer who has the time to travel to her favorite course, or someone one who likes a regular jaunt to Las Vegas. The bigger issue for the Flight Pass is the commitment to fly six trips or more. It’s likely that when modeling the economics, Alaska has counted on some breakage, meaning that every subscription buyer will not take all of their flights in the prescribed time. Even if they only use four or five, they may feel this makes sense. The Flight Pass basic product might sell because some people will think the option value of $49 per month makes having six flights available well worth it.
This brings up the adverse selection problem, where it’s possible that the only people who buy the Flight Pass Pro are individuals or companies that otherwise would have spent more money to fly on the airline. The real risk to Alaska Airlines with the Flight Pass Pro is the revenue dilution that they will face when business flyers are paying the subscription rates rather than the normally higher, last minute rates. Business passengers are also more likely to be less concerned with the breakage - meaning paying for flights they may not take.
Business customers may prefer the certainty of paying no more than the subscription rates, as likely there are days of the week and times of the year that would be more expensive than what I checked. This is less than the $199 monthly rate for the Flight Pass Pro. Buying a ticket for tomorrow on Alaska from San Francisco to Los Angeles will cost me from $165 to $192 each way, depending on my flight times. From a revenue standpoint, the Flight Pass Pro creates more risk for the airline.