Debunking The Alaska Airlines Flight Pass Subscription Plan

Alaska Airline
ALK
s is the latest airline to introduce a fixed price plan for travel. They call it the Flight Pass, and subscribers pay a monthly fee based on how many flights they want to take and how much flexibility they need in booking. Alaska Airlines is based in Seattle, but you can’t use the pass from that airport. Flights under this program are only for within California, and from California to Arizona and Nevada.

When Alaska bought Virgin America in 2016, many considered this largely as a way for Alaska to become more relevant in San Francisco and Los Angeles. Designing a new pricing program specifically for California suggests that this strategy may be struggling, and maybe the Virgin America purchase didn’t provide enough heft to compete against the strong presence of carriers like United and Southwest. The plan itself promises discounts but it’s not always clear that is the case, suggesting that the economics of this program may not end up working and, like other programs of this type, it will quietly go away or be changed within a year.

Details Of the Flight Pass Plan

You see just $49 for a flight and of course that gets you hooked. That’s the entry level price for a Flight Pass, and you commit to 12 monthly payments (a total of $588) for six roundtrip flights within the designated areas. Not six whenever you want but one every two months. You can upgrade to $99 per month to get a trip every month, or $189 per month for 24 trips, two per month. These trips must be booked at least 14 days before the flight departs, and you will pay taxes up to $14.60 per flight and pay extra for checked bags.

The Flight Pass Pro lets you book up to two hours before flight time, but this pass starts at $199 per month for just six trips, and up to $749 per month for 24 trips in the year. All flights are within the state of California or from California to Nevada or Arizona. That means with the Flight Pass Pro, you could be paying $398 for a roundtrip booked closed to departure for routes like Los Angeles to Las Vegas or San Francisco to San Diego. I could book a trip for tomorrow on Spirit from Los Angeles to Las Vegas for $92.

The Challenge For Leisure Customers

Leisure customers likely won’t need the ability to book sooner than 14 days before departure, so most would opt for the standard Flight Pass. As I’m writing this, I am also checking prices for trips on Alaska for two weeks from now. I can buy a roundtrip from Los Angeles to Las Vegas for $54 each way, or $108. In the lowest price Flight Pass, I would be paying $98 for this trip because of the once every two months reward. I found some flights for $44 per trip, lower than the Flight Pass, and some where the closest fares were well in excess of the Flight Pass rate.

So it seems that leisure passengers might save some money with the pass, but with fare sales common and a lot of competition on many of these routes, it’s not clear that will always be the case. Plus, the subscription commits the buyer to pay every month, and how many leisure travelers are willing to do this? The biggest challenge to get leisure travelers to bite is that they can wait for sales and likely do just as well, or maybe better, without the commitment. Without the subscription, a customer is also free to shop among multiple airlines.

The Risk For Business Customers

From a revenue standpoint, the Flight Pass Pro creates more risk for the airline. Buying a ticket for tomorrow on Alaska from San Francisco to Los Angeles will cost me from $165 to $192 each way, depending on my flight times. This is less than the $199 monthly rate for the Flight Pass Pro. Business customers may prefer the certainty of paying no more than the subscription rates, as likely there are days of the week and times of the year that would be more expensive than what I checked. Business passengers are also more likely to be less concerned with the breakage — meaning paying for flights they may not take.

The real risk to Alaska Airlines with the Flight Pass Pro is the revenue dilution that they will face when business flyers are paying the subscription rates rather than the normally higher, last minute rates. This brings up the adverse selection problem, where it’s possible that the only people who buy the Flight Pass Pro are individuals or companies that otherwise would have spent more money to fly on the airline.

Who Will Likely Buy These Subscriptions

The Flight Pass basic product might sell because some people will think the option value of $49 per month makes having six flights available well worth it. Even if they only use four or five, they may feel this makes sense. It’s likely that when modeling the economics, Alaska has counted on some breakage, meaning that every subscription buyer will not take all of their flights in the prescribed time. The bigger issue for the Flight Pass is the commitment to fly six trips or more. For leisure customers, this would likely be a golfer who has the time to travel to her favorite course, or someone one who likes a regular jaunt to Las Vegas. Still, even these people could likely meet their goals by responding to regular sales rather than commit to monthly payments.

The Flight Pass Pro offers the flexibility of booking a trip to leave almost right away. Businesses will like this and the fares for close-in bookings can get quite high, so the Pro pass provides some price protection. Not all businesses need all of this flexibility, however, so maybe Alaska could have reduced their dilution risk by offering booking up to three days before flight instead of two hours. It seems likely that the individuals and businesses that buy the Flight Pass Pro will do it only because they estimate it will save them money compared to what they otherwise would spend.

The Competitive Reaction

The reason Alaska Airlines launched this program is because they are having trouble getting traction in California. Southwest Airlines and United Airlines provide the greatest competition, and both carriers will not sit idly by for Alaska to take their customers with these subscriptions. They likely will help ensure that the prices being paid in the subscriptions don’t seem like a great deal. American, Delta, and others will be watching this closely too. These prices were not brought to Seattle or Portland for a reason, but the creation of this program may ensure that those cities get some value from the competition.

For Alaska Airlines to win in California, they need more than a promotional pricing stunt. They need a close look at their capacity, partnerships, customer offering, and flight schedule and give Californians a reason to choose them over their competitors.

Why The Flight Pass Is Destined To Fail

Some people will buy the Flight Pass subscription and find good value in it, and take all of the trips. More common, though, will be people who become resentful of the monthly charges because their initial flying aspirations didn’t end up matching with life realities. Or they will find that they aren’t saving much, or maybe even paying more than tracking the regular ongoing fare sales on all the airlines that serve these markets. The business travelers who step up to pay for the Flight Pass Pro will probably be happy with their purchases because they can ensure utilization of the trips and more than often will save some money versus the rate they would otherwise pay.

This is why Alaska will choose to kill this program after its first year, or modify it significantly for a second year. They can generate the same revenue as the leisure subscription with pricing sales, and still benefit from higher prices on the days and times that the market will accept this. For the business traveler, they will conclude that every passenger they take from Southwest with this program is more than offset by the dilution from their existing customers that now have to pay less to fly. Add to all of this the administrative costs to manage this program, and the steady stream of complaints they will get from customers who don’t understand the commitment they made, or had a change in their situation and can’t keep up, or didn’t realize that they would lose a flight option by this date, or the many other problems this program will generate. Every other airline that has tried this approach has seen the same problems, and nothing about the design of this program suggests that Alaska has built a better mousetrap.