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

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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.  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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Category

Aer Lingus and AerClub, British Airways and Avios, Iberia and Iberia Plus, Vueling and Vueling Club

Comments (98)

This article is closed to new comments. Feel free to ask your question in the HfP forums.

  • Darren says:
    5 Nov5 November 09:06

    ‘most of our readers pop in at 9am for 5 minutes and then get on with their jobs.’

    *looks at the time… 9.02*

    Im so average!

  • Gavin says:
    5 Nov5 November 09:19

    dynamic pricing makes partner redemptions look more attractive

    • Sergey says:
      5 Nov5 November 10:07

      Provided partner redemptions are not based on dynamic pricing.

      • TripRep says:
        5 Nov5 November 10:20

        Gavin’s point entirely!

      • Gavin says:
        5 Nov5 November 11:11

        I can’t see how BA.com would have access to another airlines booking system to see prices / fare buckets.

        • Alan says:
          5 Nov5 November 11:15

          Given they can cross-book onto other airlines in case of IRROPS I’m sure they’d have easy access to pricing/fare bucket availability – after all ExpertFlyer can access fare buckets. What they wouldn’t have access to would be the fare paid for an existing ticket- that’s why the likes of United don’t award PQDs on flights not booked through them.

  • mike says:
    5 Nov5 November 09:30

    A few things I noticed while skimming

    – focus on NA and LATAM markets, everything else is “rest of the world”. Feels like BA have abandoned competing flying east against the ME3, in particular leaving it to QR (yes I know they have a stake in IAG).

    – the comment about economy LH food is improved “quantity and quality”. Doesn’t seem consistent with a BOB mentality but how the Spaniard will deliver that for less money remains to be seen. Posh pasta?

    – no mention of strikes or IT meltdowns!

  • George says:
    5 Nov5 November 09:39

    Flying 767s on short haul at present, and prefer them over A320s as the former is just that much faster. Any idea what “Boeing 767 aircraft to leave the fleet in the short term” means?

    • Lev441 says:
      5 Nov5 November 10:00

      On the presentation, it said by the end of 2017!

      • Rob says:
        5 Nov5 November 10:18

        That is a mistake. October 2018 (end of the Summer timetable) is the date I believe.

        • Lev441 says:
          5 Nov5 November 10:41

          Ha that does make more sense… especially as a flight I’m due to take next year is currently scheduled for a 767!

    • Rob says:
      5 Nov5 November 10:19

      Gone by the end of the Summer timetable next year.

    • Cate says:
      5 Nov5 November 12:04

      Historically airlines don’t put old aircraft back into service; necessary maintenance costs on old aircraft are eye watering. Typically they get sold off to a company who converts them to medium range freighters for the likes such as DHL, Fed Ex and UPS. I’m not suggesting this is what’s going to happen with these.

      • the_real_a says:
        5 Nov5 November 13:05

        What you say is very true however i always think the argument is contradictory. Since cargo airlines are usually shoestring operations, the suggestion that older aircraft are more expensive to run always puzzles me. By that token cargo operations should be leasing new aircraft which are “cheaper” but of course they are not.

        • Rob says:
          5 Nov5 November 14:27

          A lot do – whilst the 747-8 has been a disaster as a passenger aircraft it has a bit of life in its cargo variant.

        • Will says:
          5 Nov5 November 22:25

          I always assumed that big old planes make ideal freighters on routes where they won’t turn around for a while (so fuel burn and maintenance is less important that capital outlay and you want to turn it around full if you can so you wait for the cargo to build up) or on short but busy routes where again fuel burn is less important than being able to haul a large payload.

  • David S says:
    5 Nov5 November 09:49

    “Customer improvements planned for BA and IB programmes”- oh dear. Based on our recent experiences of customer improvements with BA, this is not looking promising. Hopefully I will be proved wrong!!!!!!

  • W says:
    5 Nov5 November 10:03

    Rob, for a simpleton like me can you explain what dynamic pricing would mean? And what was the Nectar success of lack of? The fact I have £value for my points?

    • Rob says:
      5 Nov5 November 10:17

      Dynamic Pricing means a reward costs whatever BA decides to charge on the day you decide to book it. At the most extreme, it is function of cash price so could end up needing 1 million Avios for certain tickets (Air Canada prices some rewards at 1 million miles). The positive route is the Hilton route, where there is a cap but, on quiet days, pricing is reduced in line with cash ticket costs.

      Nectar has no traction because a point is worth 0.5p in 99% of circumstances. There is no added benefit for collecting large sums and no way to ‘game’ the system with higher value redemptions. Most people collect 500 points then instantly redeem for £2.50 off in Sainsburys with virtually no customer engagement.

      • Alan says:
        5 Nov5 November 11:09

        Although the Hilton route is only positive for now – we don’t know how the long the cap will remain in place (and indeed they no longer publish award charts to show the caps, so they may subtly drift up over time)

        • Lady London says:
          5 Nov5 November 12:31

          “Customer improvements planned for BA and IB programmes
          Progressive introduction of Dynamic Pricing from 2018”

          – Hum. Why do I see the word “enhancement” in place of improvement here.
          I think it’s going to go much more revenue-based.
          – I’ll guess that BA will give something that is not worth very much to very many people, and take away what is worth a lot to a lot of people.
          – Seems clear that Avios will be floated off to be an independent operation, which is probably why we’re not hearing much about it.

          Like Rob says, BA has very long-range plans which unfold slowly. The repositioning of shorthaul to an “aspirational” low cost version of Ryanair, has unfolded slowly and is clear. The steps to ruin what remains of the reward program may now be unfolding little by little too.

        • Tim says:
          5 Nov5 November 12:50

          My Hilton bookings have reduced significantly since the change. Both of the Hiltons in Prague and both in Budapest – arguably good value using points and cash under the old system – are significantly poorer value under the new system. And where there is still good value to be gained by using points, how long will the cap remain? How unlikely is it that Hilton will shift the goalposts a bit more and move towards full revenue pricing? Apart from the former Band 1 and 2 Hilton properties, and some of those at the higher end, most in the middle have little room for manoeuvre points wise.

      • W says:
        5 Nov5 November 12:04

        Got it. So dynamic redemptions would work the same way as cash fares? Ridiculous no. points required for certain routes & times of yr? isn’t the off-peak and peak an introduction to that?

      • Anna says:
        5 Nov5 November 12:08

        So every time the screws are twisted even further on term-time holidays, BA will increase the amount of avios needed for a redemption in the school holidays…?

        • Rob says:
          5 Nov5 November 12:30

          Cash fares are low in school hols in premium classes due to no business travel ….. could improve things.

      • Mikeact says:
        5 Nov5 November 21:21

        The only thing I use my annual mickey mouse Nectar points for is a ‘free’ bottle of Gin each Christmas , courtesy Sainsbury’s.

  • TripRep says:
    5 Nov5 November 10:23

    Rob, slightly off topic, what’s the cut off distance for getting a “free” Avios domestic connection to another BA flight.

    ie Is Moscow CW or CE?

    • John says:
      5 Nov5 November 10:43

      Moscow is CW and has F
      You could easily just start a booking to answer your first question.

      • BlueThroughCrimp says:
        5 Nov5 November 14:06

        You could say that for the majority of posts here, but it takes away from shared knowledge.

      • TripRep says:
        5 Nov5 November 19:00

        John – I was also looking for general guidance from Rob, he may have a list or a link of destinations that are just beyond CE & RFS & therefore presumably qualify for the free avios add on dom leg.

        • Rob says:
          5 Nov5 November 21:14

          The nearest routes are the ones flown by the ex-BMI A321 aircraft, eg Amman. These are single aisle planes, however. I’ve never done one so not sure what the flat beds are like or how the service is. Dubai etc is probably the nearest place with ‘full’ CW – or indeed Boston / New York.

        • Genghis says:
          6 Nov6 November 04:32

          I like the 321 CW seat. Note that 772/3s / 778s also serve some of the ‘close destinations’. DME and TLV for me this year.

    • Anna says:
      5 Nov5 November 12:03

      It’s RFS seats which don’t get the avios-free add on, I think Moscow counts as RFS. On long haul you don’t get charged avios for the connection, but you do get charged quite a large amount of tax!

      • Tim says:
        5 Nov5 November 13:05

        Moscow to Manchester (which would be a great name for a book) doesn’t get the add-on. Leeds to Manchester is completely free. Manchester to Leeds has taxes of £20,000,000 per head.

    • TripRep says:
      5 Nov5 November 19:27

      Anna thanks for your helpful reply, yep Moscow is CW but also RFS by the look of it.
      17,000 + £25 from LHR.

      Or to include a connection its a further 7750 + £25

      So whilst it’s Club World it doesn’t qualify for a free add on but the RFS is excellent value.

  • sdr says:
    5 Nov5 November 13:02

    “BA is a premium brand for all customers”

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

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