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

2. 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.

3. 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.

4. 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

5. 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

6. 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)

7. 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.