As the pressure to increase revenues weighs on all airlines Air Canada briefed investors this week on its plans and goals. Among those efforts is expanding the branded fares product, also known as unbundling, to realize more ancillary fees from passengers. The company highlighted a 39% increase in paid upgrades and a 28% increase in seat fees year-over-year and believes that continuing that growth relies on hitting two market segments. To that end a “Comfort” fare is being considered towards the top of the chain while the potential exists to introduce a “ULCC” fare – a/k/a Basic Economy – at the low end.
These fares are going to allow us to further segment our customers and provide them with unbundled packages that more closely align with their needs and preferences.
ULCC Competition (Killer??)
No doubt there are Air Canada customers wondering what else could be cut to bring about a ULCC fare. After all, isn’t that what the Tango option (or Rouge) was supposed to deliver? The proposed ULCC/Basic Economy fare would sit below the Tango fares in the current hierarchy. Executives did not specify what other changes would come about with that fare beyond the generic statement that it “will provide us with a competitive option for customers only focused on cost.”
Looking in detail at the list of Experience attributes in the chart it is reasonable to guess at some of the options that the ULCC fare might affect. Among them, “Frequent Flyer Points” and “Roller Carry On” seem most likely to be excluded from the new plan, should it be adopted. That matches the way Basic Economy appears to be rolling out across the industry and how the ULCCs Air Canada competes against tend to play.
Another take on Comfort
What does “Comfort” mean for Air Canada fares? The offering would sit between the mid-priced Flex tickets and full-fare Latitude tickets, adding more features at a slightly lower price.
We have the option to introduce our “Comfort” fare which would include enhanced perks such as preferred seats and wifi in addition to more frequent flyer miles. This is a fare that we think will be well-received by our corporate clients.
Bundling inflight connectivity into the fare is a shift many business travelers will appreciate. It also shows off the use of that amenity as a cabin differentiation option, an uncommon choice today but one that could be compelling, assuming the airline doesn’t feel pressured to give away connectivity on board to everyone for free.
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The company was careful to not commit to either of these products in the conversation, more floating a trial balloon to either signal to the competition that the option exists or to gauge feedback from passengers. Or both. Either way, there are changes on the horizon for Air Canada and we know at least part of what they’ll look like.
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