“Fly at Will”. A Good Strategy?

With the gradual stabilization of the epidemic, the air combat carried out vigorous self-rescue operations against the clock. Last year, China Eastern Airlines (CIAH) (CEA) launched the first weekend-unlimited flight passes in the domestic market. With a price of 3322 yuan (USD 469), passengers can take flights from China Eastern Airlines and Shanghai Airlines to major Chinese cities, with unlimited travel on any weekend. The carrier was reported to have sold over 100,000 passes. Backpackers and migrant workers have especially welcomed the product. Some netizens even call it "a godsend for the long-distance relationship". Afterwards, other airlines in China followed this step and launched similar products.

The idea of a prepaid fix-price all-you-can-fly pass is not new. Back in 2009, JetBlue launched the “All You Can Jet” pass, which cost $599 for unlimited international and domestic trips for a month to combat the headwind of the global recession. JetBlue called it “the most successful promotion in the company’s history” and reintroduced the scheme multiple times. During an even worse economic freefall in 2020, China Eastern's promotion was much bolder than price and scale.

For airlines, the revenue from “fly at will” is insignificant. Take China Eastern Airline as an example, at 3332 yuan per set, all 100,000 sets are sold, which is 330 million yuan. In 2019, China Eastern airline generates revenue of 120.8 billion and its cash flow from operating activities in the first quarter of 2020 was -6.12 billion. Then why do airlines launch such “non-profitable” products?

The first aim is to increase marginal revenue. For airlines, planes operation and wages are fixed costs. If each flight can accommodate more passengers and fill up the vacant seats, it will be a pure benefit. In this case, “fly at will “is to pack and sell the empty seats in advance.

It can also improve cash flow. Although the increased revenue is immaterial, the increased cash can maintain the normal operations of the airline.

Travel confidence is more important than cash flow. It is very friendly to people living in two separate places. They can use it frequently and flexibly. The cost of a single trip can be reduced, which is conducive to driving certain groups of people into normalized air travel.

While boosting the aviation market, it also cooperates with the hospitality industry. It makes full use of 5G new technology and virtual network technology to promote the use of "contactless services" and multi-party network connections. Such cooperation and support in the market achieved a win-win situation and expanded the market. While the entire domestic market is active, airlines have also made up for the cash flow required for operations, avoiding the rupture of the capital chain of foreign airlines.

Building up customers loyalty is another point of launching ‘fly at will’. The products must be registered and purchased on the airline’s app and cannot be bought on other cooperate platforms like Booking.com.

Almost all airlines have their apps and related travel services, but few people use them on a regular basis. For example, China Eastern Airlines and Booking have a hotel reservation cooperation. There is also a hotel reservation section in the App; China Southern Airlines has China Southern Airlines holidays, and there are packages of air tickets, hotels, and tickets to buy. But obviously, tourists used to be more accustomed to buying tickets and booking rooms on Booking.com or Crip.com. In addition, the airline does not have to pay commissions and other agency sales fees when the airline sells air tickets through its channels. Therefore, this time “fly at will” must be purchased through the airline's channels, which gives them another opportunity to provide comprehensive business travel services.