Air New Zealand Bidding for Upgrades SMART BRUINS WENSHAN LI JONG WON BAEK PETER SUNG PAE IRIS YU TING HSUEH

The New Bidding System Members have to bid in order to upgrade their seats. Exception: the Gold Elite members They have to bid at least 7 days before the flight. Closed bid The winning bid is announced 3 to 7 days before the flight departure. There’s a minimum bid requirement.

Consumers’ Benefit Consumers have a chance to get the upgrade with a lower price than the original fixed cost. if no one was willing to bid higher than the fixed cost if they are lucky If the member desperately wanted to upgrade his seat, he has the freedom to place a really high bid.

Consumers’ Loss Uncertainty Inequality issues “Deweese3” expresses his disapproval for this plan and comments on how this adds instability to travel planning how much should I bid to get the seat without spending too much? Inconsistency of price seasonal fluctuations due to different demands Inequality issues Paying higher price for the same product “Auction Fan” comments on this problem and offers a possible solution (Successful bidders pay the highest unsuccessful bid) If a member desperately wanted to upgrade his seat, he needs to use all his willingness to pay to ensure his seat rather than booking the flight first

Firm’s Benefit Extract more consumer surplus = more profit Case1: More chance to fill the empty seats Under the fixed cost, consumers who were not willing to pay the given price would refuse to upgrade The bidding system allows these customers to get involved, filling the business class Case2: More chance to sell the seats for a higher price Under the fixed cost, there’s zero chance to sell above the fixed cost The bidding system gives flexibility to adjust the price higher, which gives more profit to the firm. Allows the market to instantaneously dictate the price for full seating

Firm’s Loss Cost to implement the bidding system Bad reputation = possibility of losing customers The current members feel disrespected. “Frequent Flyer” comments on how he finds this plan a disgrace to loyal customers Loss of membership privilege (they should be able to get the upgrade with the certainty of price) Members might consistently bid low taking a risk to attain maximum benefit. (possible)

Success? We define success as earning more profit sustainably. Conclusion Good business plan to increase profit We think it’s sustainable because the company is slightly adjusting the “nonessential” part of the business. They also give exception to Gold Elites, giving more incentives to become one.