Bid for Business Class: Airline upgrades now up for auction

By Daisy Carrington, for CNN

September 4, 2013 -- Updated 0335 GMT (1135 HKT)

(CNN) -- Flying economy getting you down?

The good news is that getting bumped up to Business Class just got more affordable. Last month, Iberia became the latest carrier to roll out an online auction scheme that allows customers to bid for seating upgrades.

"Everyone knows that if no one is sitting in seat 2a when the plane takes off from London to New York, it's a loss for the airline. But everyone in economy wants that seat," explains Ken Harris, the founder and CEO of Plusgrade, the software company that developed the system. "The idea was to help correct that, and do it intelligently."

The setup works differently for each airline, depending on their specifications. Some carriers offer upgrades to First Class as well.

Who is allowed to participate in the bidding process also varies. Often, the selection process is determined by the route and the number of leftover premium seats. On occasion, a customer's frequent flyer status might also come into play.

 

Furthermore, bidding is blind; customers enter how much they're willing to pay, and if that number exceeds other bids (and the airlines keep that information top secret), they win. The cost of an upgrade is extremely variable, depending on the airline, season and route.

Carriers are shy to reveal how much is necessary in securing a winning bid, though it's fair to say the price is less than a full-fare, Business Class ticket.

 

The concept has gained traction with the airline community. A dozen carriers have already introduced upgrade auctions to their websites with the help of Plusgrade and he expects to double that number before the year is out.

Still, one can't help but wonder if the airlines risk eating into their premium revenues.

Jamie Baker, an airline analyst at JP Morgan, says it's a possibility.

 

"If airlines make it too easy to pay for an upgrade, it might dilute what the traveler would initially be willing to pay for that ticket," he notes. "As a result, airlines tend to control the capacity of award seats. There's a certain amount of experimentation in the process that is required."

Harris, however, seems confident the bidding system will not impact premium-seating sales.

"There's no guarantee that simply because you've requested an upgrade, you'll receive it," he says.

"If you want to sit in Business Class and your budget allows you to do so, you should buy that seat. It's the only guarantee you won't be sitting in the back of the plane on your next trip across the ocean."

 

Austrian Airlines has one of the more democratic approaches to the process. Everyone, regardless of frequent flyer status, can bid on an upgrade, assuming any are available on the flight in question.

The airline isn't worried about hurting their profits, because they view the full-fare seats and auction upgrades as two different products, even though passengers who win an upgrade receive the exact same benefits as someone who paid up front, including access to premium lounges and extra baggage allowances.

 

"This product is for a completely different type of group," explains Stephanie Kunath, Austrian's director of revenue management and business development.

"It's not for the business traveler who really wants to fly Business Class and needs a 100% guarantee that he can. It's for the passenger that just wants to treat himself for a little extra, and can live with the uncertainty."

While bidding for seats might not hurt an airline's bottom line, the advent of these auctions will likely eat away at the number of free upgrades awarded passengers.

"It probably will erode the complimentary upgrade process to a certain degree, and airlines do run the risk of offending their elite traveler, who has become accustomed to complimentary upgrades," says Baker.

Harris, however, argues that free bump-ups are the stuff of fantasy.

"Free upgrades are really only given by necessity in operational situations or given to frequent flyers," he says. "The idea that you can simply smile at a ticket agent and get gifted a free upgrade is a romantic notion. It simply doesn't happen."