When we wrote that Montreal’s Plusgrade had notched the the 11th spot and highest honour among Quebec companies in Deloitte’s Technology Fast 50 rankings Wednesday, it was with some curiosity. What is PlusGrade? Where did it come from?
In fact, the startup offers a fascinating revenue upgrade platform for the airline industry, which pits passengers against each other as they bid for things like seat upgrades. Between 2012 and 2015 it notched a respectable 1,312 per cent growth.
While it has a Montreal office, the company’s headquarters remain in New York where the company was founded. Plusgrade previously raised an undisclosed amount of private equity in August, 2015.
So what happens to all those first-class or business-class seats that go unfilled? Evidently the cofounders at Plusgrade had a case when they approached airlines with an idea to allow people who had already bought a seat in economy to bid on an upgrade.
And for many of those passengers, wrote the New York Times’ Scott McCartney, it’s still a bargain over paying full-price.
But it’s not like Plusgrade invented the concept of letting passengers bid on seat upgrades. As the Times mentioned, in January more than 30 airlines around the world offered the idea, and by now that number has likely made a big jump.
Most of the upgrades come on long flights. International carriers such as Air New Zealand, Virgin Atlantic, El Al, and TAP Portugal are now using the service to sell off upgrades to the highest bidder, as CNBC explained:
Several days before your flight is set to depart, the airline contacts you and asks if you’d like to bid for a seat in the next class of service. The airline sets either a minimum bid, or a bidding range. You put in your offer, wait a couple of days, and if yours was the winning bid, the airline notifies you to complete the transaction. If not, you’re not any poorer.
The most recent airline to introduce the perk was Hawaiian Airlines, wrote the Dallas Morning News’ Cory Shine. He wrote the bidding systems fit into “a broader effort by carriers to segment their cabins with a variety of amenities at different price points, from no-frills basic economy seats to premium economy classes with plusher seats and more leg room.”
Moreover, while the new systems offer casual fliers a chance at luxury, it could mean fewer seats available for free upgrade for elite-status frequent fliers.
Hawaiian’s “Bid Up” program will offer travelers an option to bid on first-class upgrades about 10 days before a flight, with winners being notified 48 hours prior to departure. Winners will enjoy all the benefits of a first-class ticket, from the lounge to priority pre-boarding to complimentary cabin meals and drinks.
CNN’s Miquel Ross wrote in April that airlines need to consider the delicate balance between pricing and brand and the long-term business implications.
What happens to the perceived value of your product when you repeatedly give it away as a bargain?What if regular business class passengers stop paying full-fare because they know they’ve a good chance of getting a last-minute upgrade on the cheap?
“By allowing these travelers to bid for upgrades at advantageous prices the airline not only gets that extra bit of revenue but also significantly improves their passengers’ experience,” wrote Ros. “This gives them a taste of their premium offerings and fosters loyalty.”