We pay flat fees to watch movies, to get Amazon deliveries faster or to store our documents online, and that’s just a few of the subscription services that have become part of our daily lives.
And yet, surprisingly for an industry that has often been an early technology adopter, such services are just starting to find a place within commercial aviation.
The concept is simple enough: the customer pays a regular flat fee that gives them access to a particular service – in this instance, one or more flights – for the duration of a specific period of time.
The concept is not entirely new to the travel industry. After all, commuters have long used all manner of travel passes to access public transport regularly.
It is also true that some airlines have dabbled with the concept in the past, in some cases even going for all-you-can-fly formulas, such as JetBlue’s ‘All You Can Jet’, Frontier’s ‘GoWild!’ or Wideroe’s ‘Explore Norway’ tickets.
But whether it’s the small print that made these offerings unattractive to most segments of travellers or a rather subdued effort to market them, the fact is that these kinds of fares have never taken off outside of a small market niche.
Decades of habits and legacy technology may have also played their part in the airline industry’s apparent reluctance to embrace the subscription model thus far.
Quite understandably, IT distribution systems and revenue management are two areas few airlines want to mess with. For subscriptions to become widely adopted, then, the solution must be technologically simple and make sense from a business perspective – that is, it must prevent any cannibalization of the airline’s existing business.
Things in this area may be about to change, though.
Volaris in Mexico, Alaska Airlines in the US, flySafair in South Africa and Air Asia in Malaysia are among the carriers that have launched flight subscription products over the course of the last few years, with reportedly rather promising results.
Adding to this, in April 2023, Wizz Air, one of the heavyweights of the low-cost airline industry, announced that it was launching its own program along these lines, albeit in a limited way for the time being, with a six-month pilot test in Italy and Poland.
Has the time finally come for the airline subscription service to become mainstream?
There are a number of advantages to the subscription model, starting with customer loyalty.
Caravelo is a Barcelona-based travel tech company that has developed subscription systems for airlines such as Alaska Airlines, Volaris and flySafair. Marco Serusi, marketing manager at Caravelo, told AeroTime: “The moment someone gets a subscription, they stop looking for other airlines and they no longer go to fare comparison sites. That carrier that sold the subscription has secured a loyal traveller for as long as that subscription is active, which can be a really long time”
At this point, it is important to differentiate between subscription models and the discount club or paid membership models offered by some airlines.
The former gives customers the right to book a certain number of flights within a specified period of time, whereas with the latter, travellers pay a fixed fee (often annual) in order to get access to fare discounts and certain perks, such as extra baggage allowance or seat choice.
Both systems foster loyalty among the airline’s customer base, but judging by the figures provided by Volaris in a presentation to investors in December 2022, the effect seems to be stronger in the case of the subscription model.
Volaris disclosed the fact that users of both systems (v.club and v.pass) travelled significantly more than travellers who are not signed up. However, subscribers travelled twice more frequently than members of the discount club, who in turn travelled twice as often as the rest of the passengers.
Mexican ultra-low-cost carrier Volaris provides an interesting control case, since it offers both options to its customers: a discount club called ‘v.club’ and an optional subscription, called ‘v.pass’, that allows patrons to take one flight per month for a set annual fee.
The feeling that customers are entitled to something that they will lose if they don’t use it is a sort of FOMO that may just be too hard to resist.
But, perhaps even more important than retaining existing customers is the fact that subscriptions might attract new passengers and contribute to cementing an airline’s market share.
This is reportedly the reason that led Alaska Airlines to launch its own subscription product, which is also powered by Caravelo’s technology, in February 2022.
Alaska Airlines was struggling to gain market share in California, so it tried the subscription product in order to appeal to new segments of travellers. The result: its ‘Flight Pass’, which allows subscribers two round trips per month for a monthly fee starting at $49, has proven to be a success among millennials, Generation X and Gen Z travellers.
In a statement issued on February 2023, a year after the initial release of Flight Pass, Alaska Airlines highlighted the fact that, since the service had exceed first-year projections it was making it available also for some flights to and from Salt Lake City, Utah (SLC), in addition to the destinations already covered by it in California, Arizona and Nevada.
There is also a spill-over effect as passengers tend not to travel alone.
In those cases, the airline may be able to sell more tickets as the subscriber brings other passengers along who are not subscribers.
What’s more, once booked on that airline, customers may well purchase ancillaries. In this regard, it may be possible to bundle flight subscriptions with other services, or even to offer different tiers of subscription providing access to different types of services.
Likewise, a potentially large market exists for corporate flight subscriptions. It is easy to envisage a product that would allow a firm to buy subscriptions for staff travelling regularly on certain routes.
Not everyone is fully convinced, though, particularly when it comes to ditching – at least in part – the sophisticated revenue management techniques at which airlines have become so proficient.
Pere Suau-Sánchez, a senior lecturer in Air Transport Management at Cranfield University and the Open University of Catalonia, told AeroTime; “The subscription-based economy provides a win-win for customers and companies. The former can conveniently access products, while the latter has a steady revenue stream and secures some loyalty. Yet, expanding subscription-based products to the industry could erode the capacity of airlines to retain customers, who ultimately will seek a better deal”.
“Requiring the customer to make a purchase upfront creates friction in winning that new customer. In addition, the subscription approach makes it difficult to clearly understand customers’ elasticities and extract the maximum revenue from the customer, particularly for high-yield products. In that regard, in the current context where filling seats is not a problem, the subscription model does not always help to extract the greatest yield.”
Suau-Sánchez is also concerned about increased flying sending the wrong message at a time when the aviation industry faces increasing public scrutiny on its environmental record.
He said: “From an environmental point of view, some may say that the subscription model can help increase load factors and make flights more carbon efficient. Still, the reality is that it encourages increasing flying in the context of growing pressure to reduce total carbon emissions.”
Another less obvious feature of subscription products is that, besides getting payment upfront, it offers airlines the benefit of revenue predictability.
Investors and financiers tend to like regular income streams, because it often makes businesses easier to value, to invest in or even to create derivative products out of them.
Could we even think of the subscription business as different enough from the ‘traditional’ airline model to be worth spinning-off?
This may not be such a far-fetched option, according to Mauricio Prieto, founder of Travel Tech Essentialist and cofounder of eDreams (currently “eDreams ODIGEO” a publicly listed online travel agency), who has evaluated this possibility repeatedly in his newsletter:
“In the software industry, recurring revenue businesses usually trade at higher multiples. Investors are willing to pay more for businesses that show lower volatility and more predictable revenue. This is the definition of subscription-based businesses. Airlines that have significant subscription revenues might consider spinning out those businesses in the future to better capture the upside.” he said in conversation with AeroTime.
