Aeroplan President: why dynamic pricing is the future, even for partner airline rewards

EXCLUSIVE INTERVIEW | If there are two words that send shivers down the spines of frequent flyers, it’s ‘dynamic pricing’. The term hints at reward rates that can change at any time. It also means that the customer can’t accurately predict the exact number of miles needed for a flight.

That means that travellers can never save their miles towards a particular goal. When a frequent flyer’s journey begins, their dream flight might cost 100,000 miles to book. But the goalposts could have moved once more by the time they’ve finally saved up for that six-figure balance. All without any notice that 100,000 miles would no longer be enough. And, with no grace period to book at the rate they’d seen before.

That’s dynamic pricing at its ‘scariest’. In Australian skies, it’s akin to Qantas’ new Classic Plus flight rewards. That’s where the number of points required tilts upward and downward in line with the cash cost of buying the same seat. While this can be a good thing when flights are on sale, it can go the other way when the cash fares are sky-high (pardon the pun!). But for now, dynamic pricing is often reserved when redeeming frequent flyer points on a program’s ‘home airline’.

Over at Air Canada Aeroplan, that’s the current state of play. Booking Air Canada flights comes at a variable cost. Yet the redemption rates for partner airline flights are fixed and known in advance. However, Aeroplan’s President, Mark Nasr, believes that dynamic pricing will ultimately flow through to partner airline bookings. Not necessarily just with Aeroplan, but across the industry.

Nasr invites me to the Executive Lounge at his Dubai hotel – where we’re both visiting for the 2024 IATA AGM – for a glimpse at where the future is likely headed for Aeroplan and other airline frequent flyer programs.

Dynamic pricing: the devil is in the detail

When it comes to booking partner airline reward flights, ‘adaptation of the model is required,’ Nasr says of dynamic pricing. But as the person responsible for what’s generally a popular frequent flyer program for those very bookings, he’s mindful not to dilute Aeroplan’s value and appeal.

‘It has to be balanced with customer value and transparency,’ he continues. ‘We take (it) very seriously, ensuring changes that we make to the program – and the day-to-day experience that we’re delivering – fundamentally feel fair to customers. ‘You won’t always be able to please everyone all the time. But you need to leave a good taste in people’s mouth that you’re conducting business in a straightforward way, and that you don’t have negative surprises.’

‘If we were to make changes like that, we would do so on the basis that there was commensurate value being delivered by the program. Or something new that wasn’t possible before. Now again, I’d say we’ve been very clear of what we think is best, of what we do on our own metal.’

That is, ‘with prices that change commensurate with the value of the seat. But still wrapped around it, flexible rules, combinations, permutations, et cetera, and a great booking experience. We think that that is the smartest way to go, and thus, that’s what we offer on ourselves. Whenever we’re working with a partner, it’s what the partner thinks (that’s) the most important part of the equation.’

‘We’re going to try to, as we go forward, balance ensuring that any changes to the model introduce new value. But of course, that we’re also meeting the objectives of our partners.’

How quickly will Aeroplan move to dynamic pricing on partner airline flights?

‘There’s typically long lead times with technology work,’ Nasr explains. So it’s something that ‘we’re actively working on. I mean, one thing we’ve learned from the experience of having spun off Aeroplan – and then brought it back and redesigning it – is that these programs can get stale very quickly.’

‘When you add up designing a product, testing it, some market research, building it out and then communicating, you get to easily sometimes 12-, 18-, 24-month cycles on changes. So if we’re not always working on the next iteration and always trying to find some kind of avant-garde partners, progressive partners … to experiment with, then, by nature, we’re falling behind.’

Nasr is also mindful that there shouldn’t be any ‘negative surprises. If we can at all avoid them, that means advance communication to members,’ ahead of any change. But he also realises that many Aeroplan members engage with the program because of its value.

‘It’s a very sensitive place to be because you want to make sure that you continue delivering at that level. So it’s very motivating for the team, but it also keeps me up at night.’ It’s clear that Nasr intends to find a way to invoke dynamic pricing without gutting the intrinsic value and broad appeal of Aeroplan.

Beyond dynamic pricing, what else do you consider when setting partner airline reward rates?

It’s not only dynamic pricing that Aeroplan factors in when reviewing its partnerships with other airlines. In many cases, it can be the partner itself initiating a change or asking Aeroplan to make a tweak.

As to why a partner would do that, ‘it could be because they have commercial changes internally, it could be because of regulatory changes,’ Nasr shares. ‘So take something like interchange / swipe fees / credit card discount rates. We have a partner that there’s change in their markets, so their credit co-brand products change. They have to change their award chart, the way in which they accrue miles … so that can drive a change.’

Where another airline is undergoing a sizeable shift, ‘they go to their partners and say, well, we need it to be commensurate. Or, we need you to make an adjustment. That could be a revenue management team with their own set of priorities for the bottom line. For top-line, it could be product changes. We’re adding a First Class, we’re eliminating a First Class. We are investing in our product, we’re expanding to a new geography,’ et cetera.

‘It could be that someone’s leaving an alliance, joining an alliance. So there’s several different things (or) events that will cause a partner to come to us and say, this doesn’t work. You need to change it. Sometimes, those conversations are discussions and have an outcome that can be managed over time. Other times, things change quickly, and a partner might need a quicker reaction.’

Why aren’t Premium Economy reward bookings an industry standard?

Most travellers expect that Business Class and Economy Class would be bookable using miles. At least subject to the usual constraints of reward seat availability. But when it comes to Premium Economy, it’s far less common to be able to use miles from one airline to secure Premium Economy travel on another.

For instance, even on Air Canada, booking Premium Economy using Velocity Points from its partner Virgin Australia is not currently possible. Speaking of Premium Economy reward bookings in general, ‘it’s on the list to do,’ says Nasr. ‘I’m not commenting on any carrier specifically, but if you ask me for a goal, it would be to offer premium cabin redemptions on every carrier.’

‘Now, Premium Economy. Premium Economy is an outstanding example of where the model needs to advance. (That’s) because most Premium Economy cabins are very small, and several airlines don’t necessarily have dedicated inventory classes for awards on Premium Economy. So it almost forces that question of saying, how do you interline rewards in Premium Economy?’

‘I’m excited because it opens up an opportunity to say, if we can solve for Premium Economy rewards (on) interline, then maybe we can add additional features and access for Business and Economy. It’s something that we’re working on, and we’re in active discussions with a few partners on.’

Should Premium Economy reward bookings be standardised across Star Alliance?

Speaking of reward seat categories, Star Alliance only standardises Business Class and Economy Class. For some partners, where available, that also extends to First Class. But there’s no alliance-wide standard for Premium Economy.

It’s not just outright reward bookings that don’t follow a rulebook, but upgrades, too. There are ways to upgrade on Star Alliance from Business Class to First Class, and from Economy to Business Class. But unless an ad-hoc deal is signed between two specific airlines, there’s no standard way to process an upgrade from regular Economy to Premium Economy.

I ask whether Star Alliance should improve in this area – particularly on the redemption side. ‘Absolutely,’ Nasr says without hesitation. But the alliance ‘should not approach it with the state-of-the-art 1997 Solution,’ he calls it, ‘which is, today, what underpins Star Alliance award travel. I can’t say this strongly enough: that needs to be modernised. It just does not provide the value that it once did. It still provides a lot of value, but not what it once did.’

The struggle, as always, is matching supply with demand. ‘That’s going to be more pronounced in Premium Economy,’ versus other cabins, Nasr observes. It’s a challenge any time ‘you have smaller cabins that at least, from the Air Canada perspective, are very much in demand.’

‘Premium Economy is this beautiful Goldilocks cabin. When you consider premium leisure – and then you consider a baby boomer generation that’s retiring – it’s just the perfect product for a lot of different customer types and scenarios. But it has a small footprint on our aircraft. Premium Economy is smaller than Business Class. We have 21 to 24 seats max, and we’re flying a minimum of a 24-seat long haul Business cabin today, up to 40 seats.’

But whether the solution is to broaden the footprint of Premium Economy while also making reward seats more widely available… well, for now, that’s a wait-and-see.

Also read: Why Air Canada’s Aeroplan doesn’t dabble in ‘carrier charges’

Image courtesy of Air Canada. Chris Chamberlin attended the IATA AGM in Dubai as a guest of IATA.