Evaluation of various product characteristics and selection of features for the

Flexible products aim at serving the low-cost segment of air travel passengers without (extensively) cannibalizing existing revenues and under consideration of operational necessities. Table 25 shows potential product characteristics in a morphological box layout.

396 Cf. Hess et al. (2007), p. 230. The original values were converted from US Dollar to Euro using the average exchange rate in 2001 (i.e. 1.117, cf. Oanda (2010), www.oanda.com).

397 SIAA (2003), p53f quoted in: Heitmann (2005), p. 68. The original values were converted from Swiss Francs to Euro using the average exchange rate in 2003 (i.e. 0.658, cf. Oanda (2010), www.oanda.com).

398 Cf. Gillen / Hazledine (2006), p. 16

Design element Options

Flexible component Destination (e.g. Blind Booking)

Flight times (e.g. Freedom Air)

Flight times and flight type (e.g. Air New Zealand mystery breaks) Degree of uncertainty

regarding the flight times

Time-range of several days possible (e.g.

Freedom Air)

Time-range of several hours (up to one day) possible (e.g. Blind Booking, Priceline)

Time-range of a few hours possible (e.g.

classical Standby-tickets on high frequency route) Degree of uncertainty

regarding the type of the flight

Only non-stop flights (e.g. Blind Booking)

Only flights including a connection

Either non-stop or connecting flight (e.g.

Priceline, Hotwire, etc.) Degree of uncertainty

regarding the airline

Only one specified airline possible (e.g. Blind Booking, Freedom Air)

Several specified airlines possible (e.g. Hotwire)

No information given (e.g. lastminute top

secret flights)

Prior notice period with regard to flexible component

After completion of the booking (Hotwire, Priceline,

Blind Booking)

One week prior to departure (e.g.

Freedom Air)

One day prior to departure (e.g. Air

New Zealand Mystery Breaks)

At Check-In (e.g. classical Standby-tickets)

Table 25: Potential product characteristics of flexible tickets³⁹⁹

In the following the listed options are going to be evaluated from a demand as well as a supply perspective in order to design a flexible product which can then be presented to potential buyers in the empirical part of this study.

With regard to the flexible component it can be noted that an uncertainty regarding the destination strongly limits the addressable target group of a flexible product. The company Germanwings, for instance, has in July 2009 only sold about 1.9% of its inventory by means of its flexible product Blind Booking, even though it directly promotes the product on the homepage of its website, which serves as the company’s main booking channel.⁴⁰⁰ Given the fact that the LCC Germanwings – especially in July - predominantly attracts price-sensitive leisure travelers and that the absolute fare level in July has in the last years constantly been the highest of all months of the year⁴⁰¹, which increases the attractiveness of the fixed priced offer “Blind Booking”, it is reasonable to assume that the share of travelers using this offer in other months is significantly lower.

Due to this limited applicability as well as the evident empirical evidence (based on the already available implementations of flexible products that hide the destination) this approach will not be further examined in the empirical part of this study.

On the other hand, the low sensitivity of price-sensitive travelers to schedule delay (cf.

chapter 4.3.2.3) indicates that there is a segment of travelers that is willing to accept an

399 Own compilation

400 Cf. Rodrian (2010), http://www.abendblatt.de & Germanwings (2009), www.germanwings.com

401 Cf. Statistisches Bundesamt (2009)

uncertainty regarding the actual flight times and flight types in return for a cheaper fare, which serves as the basic rationale for the assumption that flexible time-range tickets are able to gain a larger acceptance than flexible products that leave the destination open at the time of purchase. However, since preceding research has shown that both the value of time (cf. chapter 4.3.2.2), as well as the inconvenience of making a connection between flights (cf. chapter 4.3.2.4) still do play an important role in the selection process of leisure travelers, these components will be included in the empirical study in order to determine their relative value in the customer choice decision.

The wish to fly with a particular airline can either derive from different safety standards, benefits resulting from the membership in a frequent flyer program (FFP) or other personal preferences (e.g. catering). Since this work is focusing on European airlines, which generally share high safety standards as well as rather similar service standards, airline loyalty can mostly be attributed to the chance to earn miles in a FFP. Koppelman and Proussaloglou find that customers are willing to pay between € 8 (occasional leisure travelers) and € 87 (high-frequency business travelers) in order to fly with an airline that belongs to their FFP.⁴⁰² While this shows that business travelers place emphasis on flying with a particular carrier, it also shows that occasional low-cost travelers do not.

This indifference towards the actual airline among price-sensitive airlines is also confirmed by more recent studies - which also emphasize that this decrease of loyalty is especially prominent among online airline customers.⁴⁰³ Since European airlines that form multi hub networks are – de facto – in all cases part of the same FFP, passengers using a flexible time-range ticket could be guaranteed to fly with a safe airline that allows them to collect miles, which would even further diminish the relevance of flying with a particular airline. As a consequence, this factor is not going to be particularly modeled in the choice experiment in the empirical part. Instead, passengers will be told that the flight would be operated by a safe airline of a known airline group that offers an average level of in-flight services.

The moment at which the formerly unspecified flexible product component is specified by the supplier can be pinpointed as a fundamental structural difference between the presented flexible products. While most products (e.g. Germanwings’ Blind Booking, Condor’s Joker fliegen, Lufthansa’s ‘Surprise and Fly program’, Priceline, Hotwire and Travelocity) inform the customer directly after the booking process of the assigned product alternative, only flexible products such as Freedom Air’s Interactive Price Mechanism, Air New Zealand’s Mystery Breaks, classical standby-tickets as well as Roulette Hotels postpone the assignment time. While the former can serve as a price discrimination strategy that allows providers to effectively serve low-cost segments without having to cannibalize revenues from classical booking channels, it is only the latter type of products that allow companies to benefit from the risk pooling advantages described in chapter 3.3.3.2. Therefore, while it is obvious that a postponement of the

402 Cf. Koppelman / Proussaloglou (1999), p. 199. The original values were converted from US Dollar to Euro using the average exchange rate in 1994 (0.84518, cf. Oanda (2010), www.oanda.com), which has presumably been the year of data collection. In a second step the values were adjusted for inflation.

403 Cf. Teichert / Shehu / von Wartburg (2008), p. 238 or Garrow / Jones / Parker (2007), p. 284

assignment is required in order to increase the capacity utilization of all flights in a multi-hub network, it has to be examined how different notice periods affect the perceived uncertainty of customers. For this reason, the notice period will be modeled as a factor in the empirical study.

In order to make sure that the concepts which are going to be examined in the empirical part are feasible solutions, the following section aims at briefly giving an overview, whether the proposed concepts would be applicable from a legal as well as an operational perspective.

4.4.2 Compliance of the proposed flexible time-range ticket concepts