Avios ‘moving to dynamic pricing’ – and other Investor Day news

Every year, British Airways parent company, IAG, holds an investor day for the financial community to update it on what is happening.  The 2017 event took place on Friday.

The 126 pages of slides from this are available to the public and you can access them here (look under the IAG tab).  It is less painful than sitting through the entire five hour conference call!

Here are a few highlights from the slides, which cover all of the IAG operations:

BA:

“BA is a premium brand for all customers”

Profitability, punctuality, lost baggage and aircraft availability metrics all improved

Additional £200m added to the (notional) ‘£400m invested in Club World’ (don’t read much into this, the number is padded by replacement capex, necessary capex – new planes need seats! – and the new Gatwick lounges which many believe the airport funded to persuade BA to move)

New Club World seat to be rolled out from 2019 (no mention if just on the new A350 fleet or more widely)

Boeing 747 fleet to be refurbished from 2018 but phased out by 2024  (this process appears to be accelerating from earlier timetables)

Additional seats to be added to the new Boeing 787 aircraft (how? – they were designed to be pretty dense in the first place)

Boeing 767 aircraft to leave the fleet in the short term

Rome added to the list of 2018 lounge refurbishments (plus JFK and Aberdeen)

New long-haul Economy catering from January 2018 with ‘improved quality’

Changes to be made to the way the short-haul buy-on-board service operates (fewer choices, implication a crew member from Club Europe will help out)

Self-service boarding to be extended to EU short-haul from the current domestic trial

Overall performance of the maintenance unit is, financially, still behind the market due to high costs

Iberia:

Iberia financial performance much improved in a difficult environment

Additional 9 seats added to Iberia’s A320 fleet

Vueling:

Vueling ‘recovering customer trust’ after mass cancellations in 2016

Vueling wants “smart, digital, young and value maximising customers” (!)

LEVEL:

Low-cost long-haul flights bring in ‘80%-90%’ of the revenue of a full service airline with ‘10%-20%’ lower costs

LEVEL currently running at 90%+ load factors and is profitable

Potential for 15-30 LEVEL aircraft flying by 2022 (IAG has suggested it could use some of Monarch’s Gatwick slots)

Aer Lingus:

Aer Lingus performing well

New A320NEO LR fleet will open up much of US Eastern seaboard for single-aisle long-haul operation

Avios and loyalty

There was virtually no mention of Avios Group in the presentation, apart from the following bullet points which are copied verbatim from the slides:

“New management team in progress

Avios launched with EI and VY programmes

Single group points bank by June 2018

Customer improvements planned for BA and IB programmes

Progressive introduction of Dynamic Pricing from 2018

Group loyalty review in progress”

The ‘single points bank’ project has been mooted for years and is already substantially behind schedule.  The idea is that you will have one single Avios account, and all your activity from BA, Iberia, Aer Lingus etc will drop into it.

This will be more complex than the ‘Miles & More’ model, however, because there is not one single status / tier programme shared across the IAG airlines.  It will also require the various Avios airlines to harmonise their redemption and earning partners.  It’s not easy, which is why it is taking a long time.

‘Dynamic Pricing’ could mean anything.  This could work in a positive way with, for example, extra availability being released on busy flights for people willing to pay a premium.  Many airlines, eg Emirates, already do this.  BA already does it in a small way, allowing Gold members to get a seat on any flight for double Avios.

The negative risk would be moving to something that gets you nearer to a ‘revenue based redemption’ model, with mileage more closely linked to the cash cost.  This is a crazy model, however, and not even the major US airlines have dared try it in its purest form.  You only need to look at the, ahem, success of Nectar in the UK to see how excited people get about a ‘revenue based redemption’ model.

I would also stress the benefits of SIMPLICITY, which dynamic pricing can mess up.  Too many people I meet in the loyalty industry think that their members spend all day, every day, focused on their miles and points and are willing to understand complex schemes.  I don’t believe that, which is partly why we only publish stories in the morning and why most of our readers pop in at 9am for 5 minutes and then get on with their jobs.

The decentralised nature of Avios Group (which doesn’t even operate from the BA offices, it is down in Sussex) makes me think that it will fight any attempt to make points less valuable.  The wildcard here is new CEO Drew Crawley, who I’ve not met yet and cannot measure.  He was parachuted in, literally overnight, after Gavin Halliday resigned to run Etihad Guest.

Anyway ….

If you want to learn more about any of this, there are 126 slides you can work through via the link in the first paragraph.  Get yourself a very large cup of coffee first.

What you will come to realise, however flippant we may be occasionally about the way the BA is run, is that (obviously) there is far, far more going on than is ever apparent to those of us on the outside.

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Comments

  1. “BA is a premium brand for all customers”

    Are they trolling? The only thing premium about BA anymore is their prices.

  2. If only Lhr and Gatwick had more runways and slots to force competition and therefore an improved service from BA. If not for avios I would not consider them at all. I do hope the Chinese investment in MAN boosts the long haul options from the north West.

  3. Off to do all my RFS bookings for 2018 while they’re still at 4000 avios each way…

  4. ‘Vueling wants “smart, digital, young and value maximising customers”

    …….. and probably funded by their not smart, not digitally literate, older and undervalue maximising parents 😉

    • the real harry1 says:

      it’s only fair (says bloke, 55)

      we had free education, the houses that made us £500K or more, the gold-plated pension that would cost you £1 million to buy

      time for a bit of re-distribution of wealth towards the younger generations, I feel – not that I’m a Corbynista, just that it’s a genuine claim

      • Intrigued to see where this is going?

        Assuming a demographic on HfP?

        I don’t fit into any of those categories 😉

  5. memesweeper says:

    Dynamic pricing could be the death of active Avios collecting for me. If you can’t predict the price before you start, why would you start ‘saving up’ for a particular redemption? What price will the guaranteed 4 economy / 2 club seats be launched at at T-255? If they mess up the basic simple redemption predictability I’ll switch my efforts to Amex MR points or Virgin.

  6. Vueling is the worst. My mother-in-law’s flight earlier this year (April) was delayed for almost 3.5 hours. We asked them for compensation (EC 261/2004) and they disagreed (blamed the weather although the weather were fine at both airports). Took them to the CAA and CAA said they agreed to pay but after 12 weeks not heard from them. So have to ask them again (and showed them the CAA letter), but they refused and blamed the weather again! Unbelievable!

    • the real harry1 says:

      MCOL is easy, once you and Vueling agree you are at deadlock (exchange of emails, with them confirming this is their final position) – just issue your claim for £25 + EC261 compo, if you state your intentions clearly enough they’ll probably pay up rather than see you issue MCOL

      see Flyertalk thread on BA/ EC261 compensation, equally applies to Vueling

  7. the real harry1 says:
    • the real harry1 says:

      Flying Blue moving to dynamic pricing for reward flights as well…

      [“Will the Miles needed for a reward ticket change?
      From June 2018, the Miles needed for a reward ticket will change from prices according to zone and date to prices according to origin, destination and date.”]

    • the real harry1 says:

      The Travel, Pricing & Customer Contact department is responsible for creating compelling reward
      portfolios and easy redemption processes that build members’ perception of reward value to
      increase the collection of Avios.
      Reporting to the Head of Pricing, this role is focused on the customer pricing of travel reward
      products contracted by the Global Travel team and is responsible for ensuring the Avios currency
      delivers the best value reward products in order to maximise contribution and satisfaction of a global
      base of members and collection partners.
      What you will be doing…
      The role is responsible for the dynamic pricing of rewards for members of the loyalty programmes
      that use Avios as their reward currency, delivering the right product at the right price and at the right
      time, in order to best maximise margin and the satisfaction of members to drive engagement.
      The Senior Pricing Manager will work closely with the pricing team, product teams, marketing, and
      other members of the Avios and relevant travel partner commercial teams to manage inventory and
      drive ongoing pricing strategies, as well as providing critical input to the tactical promotion process.
      The Senior Pricing Manager will provide analysis, advice and recommendations to drive the pricing
      strategies, with support from the Avios management team in line with stated commercial objectives.
      This is a dynamic cross-functional role that requires excellent organisational and analytical skills,
      commercial awareness and a passion for delivering results.
      What we are looking for…
       Deliver the budgeted margin on redemption for the Avios currency (cost per avios)
       Deliver Avios redeemed and cash on redemption targets
       Use price to drive volumes back to suppliers at optimal levels to drive value through the chain
       Directly responsible for the “dynamic pricing portfolio” and strategies to deliver the above
       Support the development and implementation of “Pay with Avios” with partners
       Work closely with Customer Insight & Analytics to determine the impact of price or inventory
      changes on customer satisfaction and long term loyalty
       The role will be key in managing the transition to new dynamic pricing system capability,
      ensuring processes are robust and accountabilities between internal stakeholders are clear
       Ownership of the maintenance and development of dynamic pricing systems and rules engines
       Support, manage or own (as appropriate) CAPEX / OPEX projects involving customer price
       Work with the Head of Pricing to develop integrated pricing strategies across existing products
       Support continuous improvement and consistency of the reward pricing propositions across
      products, markets and schemes
      What we are looking for..
       Commercially astute
       Strong influencing and communication skills
       Proven demand forecasting expertise
       Proactive and ambitious
       Enthusiastic and self motivated
       Ability to plan and prioritise workloads
       Ability to work alone or part of a team
       Strong operational and organisational skills
       Strong analytical, numerical, commercial skills and business acumen
       A high level of accuracy & attention to detail
      Skills, qualifications, expertise and experience
       Travel industry or relevant FMCG experience desirable
       A high level of computer literacy
       Microsoft Excel (advanced level)
       Experience in SAS, SQL, MS query, Tableau or equivalent desirable
       Minimum of 3 years Revenue Management or Pricing experience
       Direct experience of significant systems and process re-engineering
       Degree (2.1 or above) in Mathematics, Economics, or relevant field
       Language skills desirable (particularly Spanish)

  8. I know Rob thinks dynamic pricing might actually benefit some travellers, but I am just imagining a protege of Cruz thinking, “The CW seats for the Maldives/Sydney/LA get snapped up the moment they’re released, I know, let’s charge 1,000,000 avios for them. Mwah ha ha!”

    I can speak Spanish, can I have the job?!

    • the real harry1 says:

      to be fair (to BA), the job description does try to balance both sides of the deal/ offer

    • Had a long chat with Cruz tonight. He sees this as something for the person who wants to book a Cape Town J flight two weeks in advance, in which case it becomes something like the Etihad ‘any seat’ concept and does not replace normal redemptions.

      • the real harry1 says:

        sounds interesting!

        also sounds somewhat reassuring for me, mostly RFS/ Europe, loyal Avios collector

      • Memesweeper says:

         Work closely with Customer Insight & Analytics to determine the impact of price or inventory
        changes on customer satisfaction and long term loyalty

        – that doesn’t sound all bad!

      • But the question is would last minute availability that is currently appearing close to departure date no longer appear? A lot of my redemptions seem to be close to travel where seats open up..

  9. I know Drew Crаwley a bit from his IAG Cargo times – he is good, let’s see how he is in the new job