Competition: Pick Two, Get One.

by Elaine Schwartz    •    May 22, 2013    •    762 Views

By Lauren Miller, Guest Blogger and Senior at Kent Place School.

How do you tell the difference between discretionary and business flyers?

Sure, a Hawaiian t-shirt and a sunburn are accurate indicators. But more apparently, discretionary flyers are flexible in regard to their destination, as opposed to business travelers who do not have the freedom to pick and choose locations.

GetGoing, the latest online travel company, has designed a program to specifically market discounted airfares to discretionary flyers. Through “Pick Two, Get One” travelers choose two potential travel destinations, and after payment are given one at random. Business flyers cannot afford the tradeoff of uncertainty, and for that reason airlines can be sure their discounted airfares are going to discretionary flyers.

Many airlines are teaming up with GetGoing to make up for the inefficiency caused by the difference in price elasticity between the two travel groups. Business flyers have an inelastic demand for airfares because variability in the price of flight tickets does not affect their decisions to fly.  Price-sensitive discretionary flyers, however, have an elastic demand for flight tickets because they are more likely to compromise vacation plans if the cost to fly is too high. Considering these price elasticities, airline companies try to maximize their profits by increasing airfares for business flyers and decreasing airfares for discretionary flyers. Sometimes though, it is difficult for airlines to distinguish between discretionary and business travelers.

GetGoing is a revolution in the airline and travel industries in the sense that it has created a separate airfare market for discretionary flyers.  The CEO of GetGoing, Alek Vernitsky remarks, “What’s really key is that we are discounting seats to the right people. By asking people two places they want to go and flipping a coin, we are communicating to the airline we just found a discretionary customer.” Airline companies are thrilled because they are selling seats that would otherwise go empty to price-sensitive consumers who would not fly without the significant discount (up to 40 percent off). Travel websites like Kayak and Priceline offer good deals on airfares, but airline companies lose out when business travelers, who are willing to pay a higher price, take advantage of those deals. GetGoing offers a solution to this dilemma and exemplifies the economy moving towards greater efficiency.

Sources: NYT offers some great insight on the prospects of this new startup, as well as Time magazine.

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