The airline industry faces intense competition and pressure to maximize profits. A strategy employed by many airlines is seat bidding, where unsold premium seats are offered to economy-class passengers through a bidding system. This allows airlines to generate additional revenue and improve seat utilization, while passengers benefit from potential discounts on upgrades. While seat bidding is common in many countries, it is not yet implemented in Taiwan. This study aims to understand Taiwanese passengers' willingness to participate in seat bidding and their willingness to pay (WTP) for upgrades, considering both long- and short-haul flights. This research is crucial for Taiwanese airlines seeking to introduce such a strategy and optimize their marketing efforts. The double-hurdle model is chosen as it simultaneously analyzes factors influencing participation and WTP, addressing potential sample selection bias. The study explores the impact of flight distance on these two aspects.

The literature review covers the development of seat bidding strategies in the airline industry. It begins with JetBlue's pioneering approach in 2008 and highlights the subsequent adoption of similar models by various airlines, including both low-cost and traditional carriers. The review discusses different operational methods and platforms used for seat bidding, such as Plusgrade and SeatBoost, comparing one-time and multiple-time bidding systems. The review also examines existing literature on the double-hurdle model, noting its application in diverse areas such as consumer demand analysis for various products (cigarettes, butter, cheese, fuel, crop insurance, gasoline and diesel), and passenger services (designated drivers, seat reservation in low-cost airlines). The double-hurdle model's suitability for analyzing participation and expenditure decisions simultaneously makes it appropriate for this study's objectives.

This study employed a double-hurdle model to analyze passenger behavior regarding airline seat upgrades. The model consists of two stages: (1) a participation decision (whether to participate in bidding), and (2) an expenditure decision (how much to bid). A questionnaire survey was conducted at Taiwan Taoyuan International Airport, targeting 400 passengers. The questionnaire gathered socio-economic and travel characteristics, previous experience with seat bidding, and WTP for upgrades in both long- and short-haul flight scenarios (Taipei-Los Angeles and Taipei-Tokyo). The WTP was elicited using a triple-bounded contingent valuation method (CVM), presenting passengers with multiple price scenarios to refine their WTP. The data were analyzed using a double-hurdle model, a two-level Probit model, and a Truncated model. The models assessed various factors influencing participation and WTP, including demographics, previous travel experience, familiarity with seat bidding, flight distance, purpose of travel, and income. The study calculated elasticity values to measure the sensitivity of participation and WTP to changes in the explanatory variables.

The study found that passengers under 45 years old were more likely to participate in seat bidding on both long- and short-haul flights, indicating a preference for innovative services among younger demographics. Higher-income individuals were also more inclined to participate and pay higher prices. Passengers who frequently traveled in economy or premium economy class were more likely to bid, with those traveling in premium economy showing the strongest inclination. Prior awareness of seat bidding significantly increased both participation and WTP. The WTP varied considerably between long- and short-haul flights. For long-haul flights, passengers were willing to pay an average of NTD 6917 (approximately USD 230) for an upgrade, representing approximately 55% of the reference price difference between economy and premium economy classes. For short-haul flights, the average WTP was NTD 1684 (approximately USD 56), or 24% of the reference price difference between economy and business classes. Marginal probability analysis revealed that for long-haul flights, frequent premium economy passengers demonstrated the highest increase in participation and WTP. For short-haul flights, awareness of seat bidding had the greatest impact on WTP. Flight distance was found to significantly influence participation and WTP, with short-haul flights exhibiting higher rates due to lower initial bid prices and lower participation thresholds.

The findings highlight the importance of targeted marketing strategies for airlines considering implementing seat bidding in Taiwan. The preference for innovative services among younger travelers and higher-income groups suggests that these segments should be prioritized in marketing campaigns. The significant impact of prior awareness of seat bidding suggests a need to educate potential customers about this service. The difference in WTP between long- and short-haul flights underscores the importance of adjusting pricing strategies based on flight distance and the perceived value of an upgrade in different contexts. The findings provide valuable insights for airlines seeking to optimize their revenue management strategies.

This study provides a comprehensive analysis of factors affecting passenger participation in and WTP for airline seat upgrades in the Taiwanese context. The double-hurdle model effectively captured the two-stage decision-making process. Key findings provide actionable insights for Taiwanese airlines to develop successful seat bidding programs. Future research could explore the impact of seasonal variations, membership levels, and real-time bidding dynamics on passenger behavior. Comparisons with actual data after the implementation of seat bidding in Taiwan would further validate the findings.

The study relied on a questionnaire survey, which may be subject to response bias. The hypothetical nature of the scenarios could also influence WTP. The study did not account for the influence of real-time bidding dynamics, as it used a paper-based questionnaire, and did not explore the potential impact of factors such as membership status and the number of accompanying passengers on bidding behavior. Future research with real-time data would strengthen the findings.