On March 12, the day after the World Health Organization declared the coronavirus a pandemic, Sery Kim, a lawyer in Coppell, Texas, noticed that the number of American Airlines AAdvantage miles needed to book a May flight to Barbados she had been eyeing dropped from 130,000 to 30,000 — a decrease of nearly 77 percent.
Thus set off a four-day hunt for future trips. In addition to Barbados, Ms. Kim purchased six round-trip Southwest Airlines tickets, starting later in March, to Washington, D.C., where she keeps an apartment for work. She paid $99 apiece for flights that normally cost upward of $183, with dates extending into September. She spent $93 on a late-April flight to Miami that usually costs around $330. Then she booked a safari vacation in July for about $900 round trip to Cape Town — about half what she paid for a South Africa flight in 2016.
Ms. Kim, 41, was indulging in what might be called flight arbitrage. Inexpensive airfare deals abound currently; couple those with newly relaxed airline change and cancellation policies and some travelers are seeing little-to-no risk in pointing, clicking and purchasing. They are betting that things will have improved enough to travel, and if they haven’t, they can roll their money forward into an even later trip.
“The comparison of real prices today versus reference prices that consumers have in their memories — ones they may even be unaware that they hold — is leading to this kind of purchase behavior,” said Priya Raghubir, a New York University Stern School of Business professor who studies consumer psychology and spending.
And with airlines poised to burn through $61 billion of their cash reserves during the second quarter of this year, according to a recent analysis by the International Air Transport Association, having customers on the books — even if they eventually cancel — is a strategic move.
“Selling cheaper tickets for future travel is a good way for airlines to generate sales activity and also start restoring consumer confidence for future travel, which gets shaken badly in events like this,” said Khalid Usman, senior vice president at Oliver Wyman, a management consulting firm.
“While governments around the world are planning to provide support to airlines financially, some element of financial risk for travelers remains, such as airlines canceling flights or, in the worst case scenario, airlines going out of business,” Mr. Usman said.
That’s why some experienced travelers, like Nelson Yuan, a Hong Kong based investment strategist who flew around 300,000 miles last year for business, haven’t gone beyond window-shopping.
“Cash is fungible. At this point, many airlines are effectively not giving refunds despite their stated policies; they’re short on cash so they’re pushing credits,” said Mr. Yuan, 37. “In that case, you’re basically giving them a short-term loan.”
Read Original Article
