Why does BA sell seats VERY cheaply whilst blocking off Avios availability?

‘RevMan’ (ie revenue management) as it is called in the trade, is by nature part science and part instinct.  Any idiot can fill a plane if they charge ultra-low fares.  The real skill is in how you increase the pricing as the plane fills and you get nearer to departure in order to maximise the marginal revenue from every passenger.

If I drop the economic theory, what this means is that – on any particular day – there may be 10 people who need to fly to Detroit as 12 hours notice.  BA wants to keep 10 seats empty for those people because their employers are happy to pay the full business class fare.

There may be a further 50 people who have business in Detroit and tend to book 2-3 weeks in advance.  BA will want to keep seats for them too, as they will be paying a high semi-flexible price.

You also need to fill all of the other seats on the plane, and you need to siphon off people who are willing to pay £750 to fly to Detroit from those who will only pay £400.  As I said, it is half science and half instinct.

BA A319

Which brings us to BA revenue management and Avios redemptions ….

If you have tried to find an Avios seat to the United States over the Summer, you will know that there is very little about in premium classes.  Very little indeed.

This would lead you to think that BA expects all of these planes to be full of high-paying business passengers – even though that is illogical over the Summer.

I wrote yesterday about some of the astonishing deals available at present from European starting points. See here for more details.

From Brussels, for example, you can buy a Club World ticket to Las Vegas for £917. 

For £917, BA will fly you in Club Europe to London from Brussels, Club World to Las Vegas and return.  Even a BA Executive Club Blue member would earn a whopping 17,000 Avios back – enough for two return flights to some parts of Europe.  If you have an On Business corporate account you will earn over £100-worth of On Business points as well.

British Airways is willing to sell lots and lots of seats at this price.

Yet, for Avios redemptions, the cupboard is bare.   But this makes no sense!

Let’s compare the economics to BA side by side:

£917 cash ticket Brussels to Las Vegas – BA needs to cover the cost and taxes of four flights, must issue 17000 Avios (more to a Bronze, Silver or Gold member) and must issue On Business points equivalent to approximately a further 12500 Avios.

£575 ‘taxes and surcharges’ Club World Avios redemption London to Las Vegas – BA need only cover the costs of the two long-haul flight, issues NO Avios and issues NO On Business points.  BA reduces its accounting liability for Avios redemptions by the equivalent of 100,000 points.  It also has two extra Club Europe seats for sale between Brussels and Heathrow because the Avios redemption is direct.

There is an Air Passenger Duty difference here, because the £917 ticket incurs no APD as the passenger is not stopping over in London.  I admit that.

However, taken overall, the net cost to British Airways of the two flights I highlight above must be pretty similar.

If the BA accounts put a book value on an Avios of just 0.25p, then the accounting income from the redemption flight is £575 cash + a £250 reduction in liabilities for the book value of the Avios redeemed.  This is around £825.

Similarly, the accounting income for the £917 flight is £917 less, say, £70 for the book value of the Avios and On Business points issued.  This is around £850.

Much of a muchness then.  So why are Club World Avios redemption seats to the US almost impossible to find when BA is falling over itself to sell Club World seats for cash for roughly the same net cost?

Obviously the £917 flight brings in more hard cash but from an accounting and profit-reporting perspective the difference is small. And that is before you consider the impact on BAEC member loyalty by effectively closing off redemptions ……

(Want to earn more Avios? Click here to see our latest articles on earning and spending your points and click here to see our list of current Avios promotions.)

Virgin, AA and United credit card offers extended - and a new Etihad Guest deal
New '30% off' and '4-4-3' InterCon / Holiday Inn promos for Summer
About Head for Points

We help business and leisure travellers maximise their Avios, frequent flyer miles and hotel loyalty points. Visit every day for three new articles or sign up for our FREE emails via this page or the box to your right.

Comments

  1. Danksy says:

    I’ve been frustrated by lack of Avios redemption opportunities too…me and SWMBO have 3 241 companion vouchers and a chunk of Avios piling up.

    BUT just to note you only really need 1 decent redemption in F to make it worthwhile with a companion voucher. for example we are flying to IHA from LHR in October and managed to bag 2f1 returns in F for just over £1k in taxes and the usual stack of Avios , not bad for tickets that are selling for over £3k each!

    Avios themselves have a strategy of widening their redemption opportunities, as their network of partners continues to expand. IMHO they offer the largest selection of metal for redemptions; with BA however the restrictions on the 2f1 voucher that complicate availability options!

    I can’t say I blame them though! In my example above the 2f1 voucher has lost them nearly £1.5k in revenue, not bad when you consider it cost me peanuts (thanks to 3v cards in the main!)

    • oyster says:

      Your 2for1 hasn’t cost BA at all. This is the myth and is partly what drives Rob’s post in the first place. BA has certainly not lost £1.5k in revenue – if that was the case then they wouldn’t offer award availability or Amex 2 for 1 vouchers.

      BA will ask for £500+ each in fees (of which more than two thirds goes straight on their bottom line). Remember Avios aren’t free. BA make a profit on issuing them.

  2. The availability complaints seem odd to me. There is plenty of availability if you know where to look. I don’t sense things getting worse for me.

    I use my Avios to upgrade my WTP LH overnight sectors to CW and have an approximately 70% success rate which is not to be sniffed at.

    The other use is taking my family of 4 to somewhere in Europe. 4 CE tickets for £200 again is not to be sniffed at and availability is again usually there. Even in school holidays. Had trips to HEL, BGO, MUC, CPH in the last year or so without much difficultly.

    Where availability is poor is for customers who want to take a whole family on some LH CW or F trip. If you are trying to take your family to Dubai or Singapore or Sydney in F then I can understand why (lack of) availability will drive you mad. Perhaps BAEC is not the scheme for you.

  3. A side question to the main discussion. If you want to travel with a one-world partner (eg Malaysian Airlines, from Amsterdam to Kuala Lumpar) and want to check availability with avios, is there a quick way to check several dates? The only way I can see is that you have to pick a day when you would like to go and if that’s not available you then trawl through day after day of potentially no availability using the little date bar at the top.

    I know about the flight availability map but as far as I can tell that only shows BA flights, not one-world partners so does not help matters.

    • Not on ba.com. However, try some of the other oneworld websites. American’s site is OK for this but does not have Malaysian available for online booking I think. The Qantas site is generally well regarded so that is worth a try. And, of course, Malaysian’s own site should be your first port of call. Availability should be the same.

  4. MrHeckles says:

    I can’t fault Raffles’ logic – it is mystery as to why they don’t loosen the strings a little, esp. to The US. That said however, I personally feel I have done ok in recent years.
    I am sat on what is clearly a relatively small pile of Avios – ca 300k – but I think it increasingly makes sense to move Tesco points to VS – at least then I have some alternate options to USA, and as both BA and VS do one-way redemptions, there is a chance of getting award availability there and back, albeit with different carriers.

  5. I too believe BA has dropped the ball over the BAEC economics, as the article points out.
    To have increased the pool of avios collectors is a good effort, but half the effort. No point if too many can’t use the damn things.
    To have reduced the flow of last 28 days, or last 4 days reward releases in the CW & F cabins is losing a lot of goodwill.
    At the present rate of easy avios collection, and reduced long-haul premium flight redemption options we’re surely heading for a major devaluation … er “re-alignment”.
    I’m all right jack, as I plan enough trips 2 years in advance to be able to get rewards seats soon after they release or use the back-up plan onto an ex-EU (or CX or QR sales, even US now).
    Bottom line: they need to get availability and avios earning rates back towards a better synch.

  6. @Raffles and anyone else,

    I am a US citizen and live in the US. I want to join the British Airways Exec Club mostly for the great Avios award chart for short domestic US trips.

    Does anyone know if there is a promo running for new members? I am not planning any travel on BA in the near future, but figured if I am joining, I might as well take advantage of any bonus points for new members. Thanks much!

    • I haven’t heard of a particular sign up bonus at present, but their US credit card routinely has some extremely lucrative sign-up bonuses that it would be well worth investigating!

    • idrive says:

      try with the Chase British Airways card. One of my US based friend got thatm i am sure that if you check flyertalk or similar blogs/forums you will easily find the answer

  7. While i share the fustration on the lack of availability, I almost exclusively book BA in C on a Ex Europe ticket. Alternatively (if departing from London) I would book Swiss,.. from LCY as the price would be much better than the direct flight with BA while the time lost on the connection would be gained avoiding Heathrow. Gaining market share in for example a *A hub i think is important to fill up the planes without having to reduce the price.
    Yes you would be able to sell those 10 seats at full fare but the remaining 40 seats would also be filled and this probably is only possible by charging a lower price. So offering an attractive price ex brussels, … would encourage those passengers to choose BA over the local carrier while allowing BA to keep charging a premium to the local market

  8. I have to agree with Tim. I have been booking BAEC and Avios/Airmiles redemptions for 20 years and I have never had an issue with availability. There is usually availability on every flight, every day. I would add that my biggest complaint would be that seats only become available less than a year before so all my other travel arrangements are made before the flights go on sale.

  9. Flieduk says:

    I am looking on matrix and cannot find any flights ex-EU CW to LAS for under £1k. What routing are you doing to get LON-BRU-LAS-BRU-LON to £917?

    • See another comment above – it seems that this price, reported on Flyertalk, was actually an average price per person on a booking which involved some kids as well. This pulled down the average to £917.

      Cheapest I can see is €1607 which would be £1100-ish.

  10. wetboy1uk says:

    i have just submitted the following email to ba as i think it is disgusting the way the aparently ‘very british airline’ charges us significantly more in fares than our european counterparts and that is excluding any taxes – i really am beginning to think this country is a complete rip off

    hi, i would be interested in you explaioning the following. looking at flights to miami both from lhr and stockholm both on the 3 may 2015 returning on the 20 may 2015 it is clear that the fare from stockholm is significantly lower. the flights in question both include the 11.10am from lhr to mia and returning on the 17..25 from mia to lhr with onward to stockholm at 10.15 am the following day on the applicable flight. before the explanation includes anything to do with taxes i would like to point out that the fare – excluding any taxes from stockholm alll the way to miami is 15SEK which is equivalent to less than 2 pounts, YET, the fare from lhr excluding taxes is 442 pounds. of course you are a very british ariline – screwing uk citizens whilst giving almost free flights to citizens of other countries. i would appreciate an honest response to this email

  11. Cheshire Pete says:

    I think sometimes BA do make the experience very trying. I have actually STOPPED using my BAPP card to buy BA tickets, unless I’m spending on Long Haul over £500. As I realised I though I was getting Free 3 x Avios but I wasn’t really on many flights.

    As you probably know, they charge £4.50 per ticket as a Credit Card Surcharge, even with their own card. I worked out that on a short haul flight, so perhaps £100 return. I was simply paying them £4.50 to get 3 x Avios, which is this case would be 300. As this was costing me £4.50 then that’s actually 0.67p per Avios. Which I think is rather poor.

    If my flight was only £50 then it’s 1.34p per Avios. Obviously there is a point whereby I would use it as the cost of the flight goes up.

    I fundamentally disagree that BA should be surcharging using it’s own branded card LOL! Oddly I recently booked flight direct with AA, and they also state they *might* charge a £4.50 for a UK Credit Card. But when using my BAPP Amex, they did not actually add that charge!

    So, again BA what are you doing with these annoying petty charges using your own products to buy a BA product, when AA do not for instance.

    • Or you could just use the commonly known loophole where you change your billing country ot another(denmark for example) and pay no credit card charge…

    • Change ‘Country of Card Issuance’ to Ukraine, problem disappears ….

      • idrive says:

        and it does let it pay? that is strange, i thought there would be a cross check as it happens with address

    • correct says:

      just had a response on my query to BA re pricing which reads:

      pricing is based on competation and availability and you are correct when saying the fare from Europe is often cheaper than that from the UK. Regards

      What a load of crap. Has this person no idea that cometition shoudl be stronger in teh UK as there are more companies flying the same route. A compelte rubbish response from BA – it is a disgrace they are allowed to carry the Union flag on their planes.

      • To be fair, Lufthansa etc play the same game. Price up Frankfurt to Bangkok and then London-Frankfurt-Bangkok and the latter will likely be cheaper.

  12. LondonSteve says:

    A lot of people seem to be accumulating huge amounts of Avios and then expect to be able to use similarly huge chunks redeeming in F or CW to a long haul destination during a busy time of year, alternatively to a destination that is perenially popular like Cape Town or Sydney. There are lots of ways to redeem Avios, some are better value than others, but I treat Avios points as a ‘freebie’, on the basis I collect them by doing something I would do anyway. For me they are a ‘lifesaver’ – I work in London and have a weekend/holiday property aboad. I usually fly with LCAs during the low season, as BA cannot come anywhere near to LCA prices at that time, although I will often choose BA during shoulder seasons, when prices tend to be closer matched and I’m incentivised by collecting Avios on top, not to mention BA being significantly more comfortable. I then burn all the Avios in the school holidays by redeeming with RFS, often at short notice, saving a fortune in cash compared to paying ££ for tickets with LCAs. It is ironic that I will fly with LCAs when BA is relatively cheap, yet fly BA when the LCAs themselves are expensive. But it works fine and I’m very happy. BA gets lots of revenue from me throughout the year and a fair wodge of loyalty, I sit in seats that they predict would otherwise go empty and they get something back for them.