Question

QUESTION 6 Airline Pricing Qantas Airways has announced a new scheme for frequent flyers to upgrade to business class seats. Under the previous system, passengers with a specified amount of frequent flyer points were allowed to upgrade to available business class seats. Now, frequent flyers can also bid a mix of frequent flyer points and cash for upgrades. A minimum dollar amount of cash will be required, and Qantas will give guidelines on the likelihood that a proposed bid will be successful. Why would Qantas believe that its profits will be increased by the new scheme? Why would Qantas give a guide to whether the cash bid made by a passenger for an upgrade will be successful?

Answer 1

1)Qantas is essentially creating a lottery system for upgradation of seats to business class for frequent travelers which means that it can get a guaranteed cash amount from each frequent flyer bidding to get an upgrade. The alternative is the decreased sale of such seats or them going empty since people are not incentivized enough to go for them in the status quo.The creation of a minimum cash amount means that Qantas can reasonably expect to increase its profits through this scheme.

2)Qantas relies on maximum participation in order to increase it's profits through this scheme and perfect knowledge is the most effective way of doing so.By providing the information and probablity of outcomes, it increases trust and allows it's frequent passengers to make informed choices since they are a valuable asset to the company.