Reverse Auctions for Airfares, Hotel and Car Rates?

Here’s an interesting twist on the reverse auction strategy of getting suppliers to under-bid each other for the buyer’s business.  Instead of a buyer initiating the reverse auction, have the supplier do it.

It’s not a silly as it sounds.  In fact, it is being done successfully by Air New Zealand, according to this article in Tnooz.  Called GrabASeat, the business model is simple – list a limited number of seats on a route, decrease the price every so often, and let shoppers decide when they want to buy the seat.

It’s revenue management juiced up by the buyer’s fear of losing the seat.  Air New Zealand is apparently using this tool to sell some of their far-in-advance inventory.  I wonder if it could work for closer-in purchases, such as 7-day and 3-day advance purchase inventory?

And as Tnooz speculates, perhaps this could work for other travel categories – hotel rooms, rental cars, cruises, and the like.

Imagine the implications for corporate travel programs:

  • Instead of negotiating for discounts, buyers might negotiate for early access to the reverse auctions.  A big buyer might get longer preferred access than a small buyer; unmanaged programs would get no preferential access, just as they get no discounts today.
  • Buyers would need some form of “best price to book” algorithm so that they don’t have travelers staring at a reverse auction screen all day.
  • Travel management companies would have kittens trying to prove the lowest logical fare.
  • And if the fares decreased in price every 15 or 30 minutes, then the ATPCO/GDS/OTA-driven distribution channels won’t even have access to these fares.  Why not? Because ATPCO today releases new and changed domestic airfares only three times a day to the GDSs and OTAs.  That means these reverse auction fares would be served, practically speaking, only via the website.  And if that happens, GDSs would join the travel agencies in the kitten-delivery business.

Who knows if these reverse auction fares and rates will find a place in corporate travel programs. But you have to admire the creativity of a supplier who sees a way to use a buyer’s tool for its own benefit.

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2 thoughts on “Reverse Auctions for Airfares, Hotel and Car Rates?

  1. Pingback: Top Reads from 1st Quarter 2010 « Gillespie's Guide to Travel+Procurement

  2. Difficult equation trying to decide the “value” of “value.” You could bounce it around cost per mile under contract agreements and pick a point where the deal made sense. But then change fees on tickets purchased so far in advance would probably wipe out the “savings.” It is an interesting idea with potentially even more creative spin offs.

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