Air Canada's Multi-Tier Ticket Lets Fliers Buy Only the Services They Want

Air Canada has "the smartest travel retail model" among big traditional airlines. "It allows the customer to buy what they value, gives the customer an extraordinary amount of control, and it helps Air Canada earn more money."

Ticketing levels below the deluxe Executive Class offer a long list of options, and they vary by ticketing level. Among them: reserved seats, $13; the option to change departure time, $36; agreeing not to cancel or change the ticket, a $6 credit; or agreeing not to check baggage, a $5 credit each way.

*Flight passes. In 2004, Air Canada started selling passes that let customers buy 10 or 20 flights for travel in specified zones over a set period. For example, a traveler can pay $2,100 upfront to fly Air Canada 10 times (five round trips) in western North America, territory consisting of 12 U.S. cities and 30 Canadian cities. The flights must be taken within 12 months of the purchase date or they're forfeited. Individual pass sales, which generate about 6% of Air Canada revenue, doubled in 2006 over 2005.

Marianne Borenstein, an executive at Toronto-based data tracker, calls the passes "really convenient." She can call up to an hour before departure to reschedule without penalty.

*Subscription travel. In October 2006, Air Canada introduced subscriptions, which allow buyers to take an unlimited number of flights for three or six months. In March, the carrier started selling them for the first time the USA. Because prices vary by fare class as well as geography, fliers wanting the most freedom pay more. A pass to fly anywhere in North America, for instance, costs more than a pass restricted to eastern North America.

Frequent flier Jim Flieler of Toronto, who flies at least 100 times a year, now buys a pass for a set number of trips, and plans to switch to a subscription to bring down the cost of his travel on Air Canada.

"It's huge savings," he said in an Air Canada VIP lounge in Toronto before flying recently.

*Digital entertainment. Air Canada is the first airline in the world to install digital entertainment systems in every seat, even in its smallest 70-seat jets. The fleet will be outfitted by the end of 2008. The systems contain digital movies and music that passengers can start, stop and pause whenever they want. The system is free, even for Tango ticket holders.

Music fans this month, for instance, can choose from a few XM satellite radio channels or make a playlist from albums by artists including Beyonce, Abba and Zero 7. Only top-tier international carriers such as Emirates, Singapore and Cathay Pacific have similar systems.

This spring, Air Canada will begin testing technology that lets travelers check in, check bags and ultimately board Air Canada flights with just a cellphone or mobile device. A traveler will be able to receive boarding pass information through a tiny bar-code image on a cellphone or mobile device.

That, too, would put Air Canada ahead of U.S. airlines. Now, U.S. airline security rules require travelers to have a paper boarding pass in hand when going through security, says Betsy Talton, a Delta Air Lines spokeswoman.

Reinventing the wing

Former Air Canada CEO Robert Milton, who is now chairman of airline parent company ACE Aviation Holdings, concluded in the late 1990s that the traditional airline business model was broken and needed reinvention. Customers no longer trusted that airlines were dealing fairly with them, partly because of the hassle and expense of buying a ticket, he said. Milton said Southwest Airlines, the consistently profitable discount giant, had shown the value of keeping the trust of its customers.

The result of the changes, says Henry Harteveldt, travel industry analyst at Forrester Research, is "the smartest travel retail model" among big traditional airlines. "It allows the customer to buy what they value, gives the customer an extraordinary amount of control, and it helps Air Canada earn more money."

He likens the airline to a "shopping mall with wings." When taking a short flight to be at an appointment on time, they can buy the cheapest, most restrictive Tango ticket. When flying home after a business meeting that could end early, they might buy a more expensive ticket so they can catch an earlier flight. It's no different than when consumers choose among K-Mart, Macy's and Neiman Marcus, he says.

Despite the views of Air Canada's fans, airline analyst Ray Neidl says its pricing approach will be slow to catch on with U.S. competitors. Neidl thinks small U.S. carriers will embrace it faster than the big airlines.

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