It is rare to hear someone rave about an airline's ancillary fee program, but Rudy Maxa, host of PBS' "Rudy Maxa's World," was enthusiastically telling me about paying (and paying, and paying) to join regional, Minneapolis-based Sun Country Airlines' premium loyalty program, Ufly Plus.
Those charged with maximizing airline revenue, take note: Rudy and other members of Ufly Plus are willing to pay a lot of incremental revenue to join Ufly Plus for one simple reason. They are paying for the ability to opt out of the most widely used revenue enhancement system employed in commercial aviation: yield management.
Membership in Ufly Plus carries a relatively high price tag. There's a $99 initiation fee and monthly maintenance fees of $12 ($17 for a family, covering up to five people). There are a few nice, value-added perks, such as priority check-in and boarding in Minneapolis, as well as discounts on hotels and other negotiated deals. But what attracts most of its members are fares that demonstrate a consistent logic.
The confounding rules of yield management systems might give an exit-row aisle seat to a first-time flyer for $230 while charging $600 to a frequent flyer stuck in the middle seat in the next row. Yield management algorithms factor in so many variables that it's impossible for any passenger to know, with certainty, the best time to buy.
For those who join Ufly Plus, however, all domestic tickets cost $39 plus 10 cents a mile. The base goes up to $89 for international flights, which for Sun Country currently means Mexico and the Caribbean.
There is no guarantee that the Ufly Plus price will be the lowest price offered by the airline on any particular flight. In fact, here's the kicker: Over the course of a year, Ufly Plus members are likely to pay more -- significantly more -- when they pay the member price rather than the yield-managed price.
Jennifer Katz, president of AOI Marketing Group and co-creator of the Ufly Plus program, told me that ticket prices paid by members are, on average, 10% higher. Throw in the initiation fees and monthly membership revenue, and Sun Country collects a premium of 16% in additional revenue from Ufly Plus members above what they collect from nonmembers who take the same flights.
In addition, members still pay fees to check bags and select seats.
So why join Ufly Plus? "Trust me, people do the math, but it's still worth it for them," Katz said. "I think we have proved beyond a reasonable doubt that people pay for consistency. They want to know what their worst case is. They're willing to pay for a level of comfort."
Katz provided some statistics that must make Sun Country executives very happy: Ufly Plus members fly two-and-a-half times more frequently than nonmembers; 82% of Ufly Plus members increased their booking frequency after joining the program; 70% of members are new to the airline; and 22% buy members-only, discounted upgrades to first class. The program has a 75% retention rate.
Katz operates Ufly Plus as a third-party, turnkey solution to the airline: She runs a call center for ticket purchases and customer service, sends out the membership kits and makes the deals for member discounts.
She has approached other carriers with the program but has met only resistance. Legacy carriers "see this as a boutique program -- their words, not mine," she said. "They have a very narrow vision about how to price tickets, or they think they have a magic formula. They're also worried they'll lose a walk-up fare."
Katz was in investment banking prior to founding AOI, and Ufly Plus' other co-creator, Gary Kohler, was involved in hedge funds. "We were outside the airline mentality," Katz said. It also helped, she believes, that when she approached Sun Country with the idea, the CFO at the time was Shaun Nugent. "He used to be CFO for Life Time Fitness [a chain of gyms]," she said. "If you look at the pricing, it's a lot like fitness clubs, with an initiation fee and monthly dues. He understood the model right away."
Sun Country went into bankruptcy in 2008 when its then-owner, Tom Petters, was arrested for running a $3.65 billion Ponzi scheme, which in pre-Madoff days seemed like a lot of money. It is expected to emerge from bankruptcy next month.
The Ufly Plus story reveals much about airlines' attitudes and behavior, passenger preferences and the disconnect between them. Loyalty programs have grown far beyond their initial purpose of simply handing out points that can be turned in for free travel. Points today are sold to third parties, and the programs have become revenue streams for the carriers. In addition, carriers lure frequent flyers with elite status, a very effective form of golden handcuffs.
But what becomes clear from the Ufly Plus story is that there is strong passenger dissatisfaction with current airline pricing methods. Sun Country hasn't abandoned traditional yield management systems; it's just discovered a way to profit from this dissatisfaction.
Beyond that, one could argue, Sun Country has forged a bond of loyalty in the traditional sense of the word, rather than the way the term has become defined by marketers. The difference might seem subtle, but Sun Country seeks to bind customers to it by pleasing them rather than bribing them.
Email Arnie Weissmann at [email protected] and follow him on Twitter.