Air India's Chairman and Managing Director Pradeep Singh Kharola on Wednesday announced a new bidding system through which a passenger can upgrade her seat from the economy class to the business class by paying an additional fare.

"You have to bid for only the incremental amount. Whatever you have paid for the economy class ticket, you have paid... There is a cap we have put on the minimum bid one can make," he said.

This system has been started on flights operating to the US, Europe, Australia, Japan and Hong Kong. It hasn't begun on flights being operated to the Gulf region.

"People who have already booked tickets in economy class, we are giving them a chance to pay a little extra fare and come to the business class. In a layman's language, this is what we are trying to do," he explained.

This bidding system has been termed "business-lite" on Air India's website and it was launched in the last week of December.

"After the check-in is complete, which means when the passenger is moving towards the security check, the system sees how many business class seats are vacant. And then, the system allots the seats to passengers according to priority (high bid to low bid)," he said.

"So, by the time you reach your boarding gate, your upgrade has been done. At the boarding gate, you are given a revised boarding pass (with a business class seat)," he added.

A person who made the bid but did not get the upgrade will get his/her money back, he said.

For different sectors, there will be different price caps on the lowest amount one can bid, he added.

Across the network, Air India operates 4,500 business class seats. Overall, Air India operates 72,000 seats per day.

Domestically, the bidding system has begun on flights among six metro cities, Kharola said.

"When we see the load factor of business class, it varies from 50 per cent to 60 per cent. So, now, there is a good opportunity for me to use the vacant business class seats and make some money," he said.

"If the business class seat goes vacant, it is a total loss. But if I drop the business class fares to fill up seats, there would be no net gain," he added.

The flights going to the US and Australia are the ones where people really want the upgrade, he said.