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ProHub
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Medium Profitability Pricing Strategy Customer Loyalty

The Value of Loyalty

#Airlines #Travel & Hospitality
ProHub Comment

This case tests quantitative profitability analysis by requiring candidates to model incremental revenues and costs across customer segments before reaching a recommendation. The structure moves from identifying key customer differences, calculating revenue shifts, determining loyalty program costs, and finally assessing overall viability—a strong example of structured problem-solving in pricing and customer economics.

Estimated Time 15 minutes
Difficulty Medium
Source Queen's
50 / 100
Your client is Southwest Air. The CEO wants to institute a loyalty program to boost the number of deluxe seats sold on a given flight. He believes that this strategy will be a good way to capture market share from competitors. How would you evaluate this proposal?

Clarifying Information

  1. Policy is designed so that each mile flown in a deluxe seat per year earns 1 point
  2. Points can be redeemed for free flights at a rate of 10,000 points per flight in a deluxe seat
  3. Deluxe seats cost $500, plus $2 per mile
  4. Regular seats are $300, plus $1 per mile
  5. Instituting this program will cause business travelers to take deluxe seats 75% of the time and recreational travelers to take deluxe 50% of the time.