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Auctions are one of the best ways to sell airline tickets or anything else – that’s why we placed ten NFTickets under the hammer at the Eiffel Tower

When you have something great to sell, one of the best ways to get it out there is by offering it in an auction. New York auction house Christie’s sold Picasso’s “Femme assise près d’une fenêtre (Marie-Thérèse)” for $103 million in May last year and Sotheby’s expect “Femme nue couchée” by the same artist and also featuring Marie-Thérèse to raise more than $60 million when it goes under the hammer on 17th May.

Auction economics make price-setting efficient

Auctions are so successful because they let the market find the price, the seller does not need to decide. The more people there are who place bids for an item, the higher the price is likely to go – a good real-life example of the Law of Demand in action.

Since people know where the auction houses are but not necessarily what is available, the sales room is a shop window for sellers regardless of whether they are offering Picassos or more mundane items like furniture, household equipment and quirky bric-a-brac.

There are two kinds of auction – English and Dutch. Picassos are normally sold under the English system, where the price starts at a low level and goes up as the bids come in. Dutch auctions have the price starting high and reducing until somebody agrees to pay. This system is used to set the prices of flowers in the famous Royal Flora Holland market at Aalsmeer.

Economists reckon that both auctions yield the same selling pricing in the end under the so-called Revenue Equivalence Theorem. In an English auction the buyer will pay one price increment more than the second-highest bidder’s offer (the second-price outcome), which may be less than their willingness to pay.

But when the Dutch method is used and the winning price is the highest offer (the first-price outcome) the mathematics of auction theory suggests that buyers, who want to avoid paying more than they have to, wait for the price to go a little lower than their true willingness to pay before they press the buy button.

Auctioneers using the English system often set the starting price relatively low to get people bidding, and if the bidding gets heated the price will go higher and higher. With a Dutch auction the price needs to start high, but not too high. Since the auction house’s fee is a portion of the sale price a skilled auctioneer will do their best to sell every item for as much as possible, which is a great outcome for the seller too.

Airline seats are also sold by auction

The traditional approach to airline pricing and revenue management (PRM) is to at first offer all seats for sale at the highest possible price point and offer some seats at a discount until the airline is confident it will sell. On many flights the highest price is not expected to be achieved at all.

But while most airlines will sell some seats at very low rates, they will not make enough money to earn a profit if all the seats are a bargain. The airline decides how many seats to make available at their best deals and how many to hold back based on how much demand they think is going to come later in a booking window.

If you think about it, this seat sale process is a form of Dutch auction – the price starts high and goes down. If there are 200 seats on a plane, the airline will in principle take the highest possible price for all 200 of them if buyers are out there.

But in practice perhaps 50 seats will be reduced to a low price, 30 for a less-low price, 20 at a higher price and those remaining for higher and higher prices until market demand is exhausted. A good rule of thumb is that each price point will produce roughly the same revenue over a large number of seats and flights.

Ancillary revenue can introduce new auction dynamics to seat sale

These days airline PRM teams are focusing more and more on ancillary revenues, the money travellers pay for products other than the basic seat-ticket combo. These might be anything from pizzas and beers to extra bags and more roomy seats. Statista, a data platform, reckons that ancillary revenue was worth $109.5 billion to airlines in 2019 – more than 1,000 Picassos.

As ancillary revenue becomes more important to airlines their PRM departments are employing whizzy algorithms to figure out not only how much money a person shopping for a flight might pay for a seat, but how much they will eventually pay for ancillaries too. This introduces an English auction process into airline sales as passengers with high propensity to spend bid up the revenue and are more likely to find the airline has a seat to sell them.

A very special airline auction

Unlike airlines, who often sell tens of thousands of seats a day, we had just one very special ticket to sell. Shortly before Easter we auctioned the world’s first non-fungible token airline ticket (NFTicket) at the Eiffel Tower in Paris. What is an NFTicket and why is it helpful for airlines? You can read about NFT, how they are powered by blockchain technology and why they are useful for the travel industry here on our site and we will be publishing more articles like this one exploring the topic.

The ticket we auctioned is good for a business class ride on an Air Europa aeroplane from Madrid to Miami and a chance to mingle with trendy artists at Art Basel – Miami. But unlike any plane ticket ever sold before it is also a collectable piece of art that the lucky buyer will be able to add to their collection and, if they so desire, sell on to others later.

The art features a whirling jamboree of colourful stars, snowflakes and crystals by trendy artist Carlos Betancourt. Check it out in this video. It sold for $1,002,000.

Carlos Betancourt. Future Eternal NFTicket#1 2022

TravelX co-founder Facundo Diaz said “The hammer price of the ticket was a great achievement and it represented all the work that our team at TravelX had put in. We were delighted that the concept of the NFTicket was validated. Seeing bidders from every continent was amazing – NFTickets have such a wide reach and it’s great that people see the value and the application.”

Are you ready to join us?

We are introducing NFTickets powered by blockchain to make buying travel easier for consumers, lower risk for airlines and other operators, and more secure for everyone.

Not every NFTicket will feature award-winning artwork, most will be ordinary contracts for travel. But they will be easy to integrate into existing airline processes and technology. They will complement and enhance the airline industry’s initiatives in respect of distribution, offer management, retailing and more.

An important feature that we believe will help everyone in the industry from the airlines to the passengers is that passengers can trade NFTickets.

How will it work? Join us to find out.

To make it all happen we are building a free-to-join and open-to-all community of travel industry colleagues and stakeholders. This community is brand new and we will start by posting articles just like this to keep you informed of all the key issues relevant to NFT in travel.

We will be covering all the related issues in technology, economics and travel industry processes with thought-provoking analysis, industry comment and where possible a little bit of humour.

We figure that everybody in the commercial and financial side of the travel industry is an NFT in travel stakeholder. Whether you work at an airline or a hotel, a distribution or technology platform, or a manufacturer or an OEM we would love to welcome you.

Coming up later will be round-table discussions, working groups and special events to help us help your business get what you need from this exciting new technology. Our written articles are available to all, but please be sure to sign up with your official travel industry e-mail to get full access to discussions, working groups and events.

The lucky buyer who won our auction now owns a piece of travel industry history. A history that we hope that you will join us in shaping.

The winning price may not have beaten the Picassos, but it was all in a good cause – 100% of the proceeds will be donated to Ukrainian relief efforts.