Blind booking: The effects on passengers' purchase decision, airlines’ profitability, and tourist destinations

Abstract

Blind booking consists of selling cheap surprise trips with a set of possible destinations, but without revealing the real destination until the payment is made. In this paper, we develop an economic model to analyse the social and private optimality of this pricing strategy in the airline industry. We perceive opaque products as a pricing strategy managed directly by airlines (without intermediaries) and simultaneously applied with other pricing strategies. Blind booking allows airlines to sell all their seats while maximising revenues and charging different prices in two parallel and independent markets: the transparent and the opaque market. Considering consumers’ risk attitude, airlines must optimally choose the number of seats of each destination to be sold in each market in order to maximise their profits and create an attractive blind product. Our findings suggest that, in general, selling tickets in both markets is optimal for airlines. We show that, even when it is not optimal, it may enhance social welfare. Thus, policymakers, especially those of low-demanded destinations, should encourage airlines to introduce blind tickets. In these destinations, blind tickets imply an additional source of demand, attracting new customers and generating positive economic impacts.