How much would you pay for a flight upgrade?

(CNN)Auctions already set prices in art, property and fresh produce.

So why not airline seats?
Real-time open auctions are coming to the aviation industry.
    They’ve already been adopted by a handful of airlines for business class upgrades, but could also soon be available for all types of tickets.
    These real-time auctions are online, not in a room crowded with people raising their hands — but the exhilaration of securing a bargain is just as intense.

    A no-brainer?

    At first glance the concept sounds like a no-brainer.
    Let’s say you’re an airline. One of your flights is about to depart and you still have a few empty seats in business class.
    You might advertise this fact to your economy class passengers and tell them you’re ready to accept offers from those willing to upgrade.
    You’ll make some extra revenue from seats that otherwise will remain empty, while a few lucky clients get a significantly enhanced passenger experience.
    But is it as simple as that?

    Delicate balance

    The reality’s a bit more complex, as airlines need to consider the delicate balance between pricing and brand and the long-term business implications.
    What happens to the perceived value of your product when you repeatedly give it away as a bargain?
    What if regular business class passengers stop paying full-fare because they know they’ve a good chance of getting a last-minute upgrade on the cheap?

    Transparency trade-off

    Usually this dilemma is solved by trading off transparency for lower prices.
    U.S. company’s Name Your Own Price system has users submit a bid for a specific travel itinerary, which may then be accepted or rejected.
    The travel operators and exact schedules aren’t disclosed until the booking’s been confirmed, and once the offer is accepted you can’t change or cancel it.
    Stuart Barwood, managing director of UK-based airline consultancy Travercial, points out that airlines must be very careful about how they dispose of “distressed seats” — the term for seats at risk of remaining empty.
    He says auctions can work if the airline manages to target the right passenger segments in an elegant way, without cannibalizing the existing business.

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