Air NZ gentry reject free markets

Suppose that a class-based system of privileges existed, in which you achieved high status through long participation in the rituals of the society. Those in the upper classes receive access to luxury goods not available to those of low status. Now suppose that the governing body of our society decided that luxury goods should really be available to everyone with the means to pay for them, rather than just the high status individuals. In fact, the luxury goods will now be sold to the highest bidder, who has the greatest desire for them (and means to pay). Well, that would seem pretty reasonable to most people, given that’s how most markets for goods work. We might worry about inequity because of ability to pay, but nobody would doubt that the luxuries will now go to people who really care about them. Economists would crow about the increase in efficiency in the system and the removal of deadweight losses.

Obviously, the people you’d expect to object would be those of high status, who’ve suddenly had their special privileges, that they’ve toiled to achieve, removed from them. The governors understand that they’d object so a scheme is devised by which people can get discounts on their luxury goods if they buy a lot of them, much as you’d get from many customer rewards programs where you can save up reward points and then spend them on goods from the store. The governors hope that grandfathering in the upper classes so that they have greater means than commoners will placate them. Unfortunately, they’re wrong: nobody likes getting their trinkets of status stripped from them.

Air New Zealand is being accused of driving away its most loyal customers with a recent overhaul of its Airpoints rewards system. …frequent flyers using their Airpoints to book flights on the national carrier will have to bid against each other to get seat upgrades. …The changes have sparked outrage among frequent flyers, with many threatening to shift their support to rival

Previously, the frequent flyers got preferential treatment for upgrades. Now they will have to bid against everyone else to ensure the upgrade goes to the person who most values it. All the frequent flyers have on their side is the wealth of Airpoints they’ve accumulated to bid with! Apparently relaxing their budget constraint in return for customer loyalty isn’t as important as status, which really shouldn’t be surprising at all (eg. any Robin Hansom post.)

Now, it is plausible that the reduction in certainty is the real problem that the frequent flyers are complaining about.

Bids can only be placed a week or more out from a flight, with the airline telling people whether their offer has been accepted between three and seven days before departure.

Under the airline’s previous system, Airpoints users could a get an upgrade if they paid a fixed price before a flight and a seat was available.

I skimmed the forum that the Herald linked to to see if that was the case and found:

Now all the Airpoints feartures can be replaced by cash and they are taking away all the meaningful elite benefits.

So what is the difference between a [low status] member who bids compared to a [high status] member – and if the [low status] member offers a higher bid?

9 replies
  1. Richard S
    Richard S says:

    I am not (and probably never will be) a “frequent flyer”, however I do feel some sympathy for the annoyed FF’s.
    It seems to me that Air NZ paid the FF’s in a currency that Air NZ is now deflating for its own interest.
    This type of thing is not uncommon in customer loyalty schemes but that doesn’t make the annoyance of the FF’s risible.
    I would hope that the FF’s would vote with their wallets but that brings me to another point about “frequent flyer” schemes which is rarely mentioned. The FF’s are gaining personal benefit by choosing to spend their employers money with Air NZ. Is it not the case that airlines are effectively corrupting the employees of other companies by offering them pseudo-cash in return for their, the FF’s, not making a strict market comparison between suppliers ?
    I believe NZ Govt employees have to return air miles to their employer and this seems to me to make a lot of sense – it seems very odd to me that other employers don’t do the same thing.

    • jamesz
      jamesz says:

      Hey, it’s completely normal to be upset about having status stripped from you, particularly when people in competing institutions still have theirs. I don’t have any problem with them being upset, I just don’t think that means the changes are necessarily bad.

      I don’t know how most employers deal with it: perhaps the employees have no choice about who to fly with. If they do then you’d think it would affect their decision, for sure. That’s more a problem for the employment contract than Air NZ, though.

      • Richard S
        Richard S says:

        I think referring to the benefit which the FF’s no longer have as ‘status’ is muddying the waters a little.
        If we were to say that FF’s had instead been rewarded with Air NZ bonds which they were told would pay 5% and then Air NZ announced that from now on it would pay 4% that seems to me be a closer, and more useful , analogy than thinking about it in terms of a loss of ‘status’. The FF’s have lost a material benefit which they will now have to pay cash for if they wish to retain it.
        By the way from my observation it’s certainly true that some FF’s do think of their benefits as some sort of enhanced status but frankly some people think because they’ve got big exhaust pipes on their car they’re better off than the rest of us – it doesn’t mean that stealing their car would be, morally, OK.

        • jamesz
          jamesz says:

          I think my analogy is more apt. The FFs gain status through accumulating reward points. Now they no longer have the status but they still have the reward points. Previously, their bids for upgrades depended only on how many points they had, relative to other bidders (ie, ranking of status). The only change now is that there is an opportunity cost to using your high number of rewards to bid for an upgrade. Pricing the upgrade will make the market for them more efficient, but the FFs still have the advantage of a huge number of rewards to bid with, relative to other bidders. So the value of their rewards have not necessarily gone down because of the switch to an auction system, although I don’t know enough details of the system to judge whether they’re worth less now overall.

  2. JC
    JC says:

    Personally I can’t understand why an airline would allow various employees of the people, the local perpetual hui and conference attenders to fly in and out of various local centres and accumulate airpoints that can be used for upgrades on  overseas travel. I can understand FFs getting cheaper seats flying locally, but on international flights?.. looks like oil and water to me.

  3. Simeon
    Simeon says:

    As someone who earns FF point via international flights, the true value of the program is the lounge access, as all my travel is mainly 4 leg travel, thus resting somewhere quite is/was a god send.

    Oh then earlier access to plan loading in nice in the US where everybody brings the kitchen sink onto the cabin, sigh.

    Now the discounted upgrades, or free upgrades was nice, so losing “easy” access to this is sad, I can understand the AirNZ desire to get maximum price to the ‘luxury’ being sold, but now I’m on this side of the fence I’d prefer status quo…

  4. codedb
    codedb says:

    They should have thought some thing about their loyal customers. In hope of new customers they put the risk of losing old customers.

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