Why the Iberia Avios Promotion was a win-win (for Iberia)
If you have been alive in the past 10 days you would have invariably heard about the Iberia promotion where you could purchase a ticket (ANY ticket) and receive 9000 avios just for the purchase regardless of whether you flew them or not. Many people maxed that opportunity out and will be receiving 90,000 avios for those ten flights they purchased with absolutely no intention of flying them.
When I saw the news break I was in total disbelief that they would honor this and immediately assumed it had been a poor translation from the Spanish language at Iberia, went straight to the source and discovered the original language version of the rules were even more confusing. Even after reading Hernan’s blog where Iberia explicitly confirmed they would be honoring the promo, I was still a bit apprehensive.
Iberia Avios Promotion
Until I realized that if this was a great opportunity for us frequent fliers, it was an even more unbelievably phenomenal opportunity for Iberia themselves.
Sometimes what glitters IS gold…
…but maybe not for us. After I got past the shiny awesomeness of 90,000 avios for under $300 dollars, I started thinking of some of the reasons Iberia would be crazy enough to make it rain miles on us:
Cash Flow
In the span of just a few days, Iberia had THOUSANDS of tickets sold to the most random destinations, read cash injection for the win. Granted, most people in the get-miles-rich-or-die-trying world got the cheapest tickets available but, considering those seats were not sold already, that’s a huge flow of cash they weren’t getting before. If you bought ten $30 tickets, you just gave Iberia 300 bucks. Let’s imagine another 19,999 people jumped on board this promo, that makes it 6 million dollars. I’m sure IAG, their parent company, would LOVE to see these numbers on the quarterly reports.
Reduced Availability
If 20,000 people bought ten tickets each, that means Iberia now have 200,000 fewer available seats for sale on their flights. Which means all of the other remaining seats will go for higher prices based on a more reduced availability. Yay for extra revenue by an inflated occupancy level.
Overselling
Now, let’s not forget for a second that they are absolutely aware that the majority of these tickets sold will not actually be flown. Which means that they can calculate with a high degree of certainty how much they could oversell these flights. After all, it isn’t that hard to query for the amount of tickets sold to members who had their accounts alive for under a week. For a higher degree of confidence, let’s refine to those whose accounts are not based in Spain, and that gets you a pretty good idea of who does not intend to hop on these flights. Triple ka’ching achieved!
Reduced Financial Exposure
We also have to remember the 90,000 Avios you’ll get are set to expire at the end of the year. So the financial risk to the company of having way too many unused Avios out there is mitigated right there. Some of the people who jumped to this promo will probably realize it takes more than five minutes to get these Avios redeemed and give up, let them expire and be done with it.
No (further) Gaming the System
They made sure to add the caveat to claw back the Avios should anyone attempt to outsmart the system and request for a refund after getting the Avios ten days after purchasing the tickets. No loss whatsoever to them.
Bonus Revenue!
Iberia gets to keep the taxes and fees collected on passengers’ behalf (which they are supposed to pass on to airports and the government) for those are no-shows. After all, if you didn’t fly, they get to keep the money that isn’t going somewhere else that you don’t request a refund for.
Conclusion
If you thought you were getting a great deal and somehow you took the red pill and were part of the travel hacking matrix, maybe you’re right. But Iberia is now popping champagne and celebrating what’s possibly their next year’s win at the Freddie Awards for Best Promotion for an Airline in Europe.
June 26, 2018
Sorry, the cash flow piece doesn’t make sense. According to the 2017 annual report Iberia’s annual revenue from passengers is €3.6B (~€0.5 from domestic flights) which means the 6MM you estimate is about 0.2% of annual revenue and about ~1% of domestic revenue. This is not something that moves the needle in anyway.
June 26, 2018
Hi John. I didn’t actually estimate by any stretch of the imagination. I merely pointed out that even with people buying cheap tickets in a large volume the numbers get high really fast. Regardless of the overall impact on their bottom line, more is always more, and if I have learned anything from the corporate world and their greed is that even a 1% increase in revenue is well received.
June 27, 2018
they could just offer a special to sell miles at a cost of 500 euro for 100000 avios that, if unredeemed, will expire on Dec 1.
June 27, 2018
I suppose they could, but why would they leave all of the other benefits on the table? I think someone was either VERY smart in planning this promo or just plain really lucky!
June 27, 2018
In my case, it should be rather simple for Iberia’s computer to correctly assume that a North American buying the same cheap flight for 10 consecutive days isn’t going to fly. So, they can re-sell those same seats.
I imagine that some others used the same method of purchasing tickets, and their tickets can likewise be re-sold.
June 27, 2018
Absolutely! The IT person in me thought of the ease of spotting all these patterns and spiced it up a bit when booking, but I would think for the most part it would be extremely easy to determine the amount of seats that can safely be oversold…