commentary

Business Travel Executive

May 2007

By Kevin Mitchell

It's Content That Matters

The unbundling of airline products has received much industry attention since May 2006 when Air Canada (AC) took its Tango fares out of the GDSs. The AC strategy is to meet low-fare competitors' prices with fares stripped of seat assignments, frequent flyer points and other product attributes. AC promised a technological solution to the Tango impasse, but one year later it has not provided one for corporate travel managers (CTMs).

Nevertheless, AC has received an award from Air Transport World magazine for innovation, and airlines around the world are watching closely how the marketplace responds to the AC strategy. Unfortunately, the corporate customer has not been adequately consulted over such a radical departure from established, efficient practices, especially given that other airlines are actively considering unbundling strategies.

From an airline perspective, such a strategy may seem rational, i.e. being able to post a net fare that makes it appear competitive with low-fare carrier offerings. However, harm to corporate travel programs has been well-documented and communicated by CTMs to the airline industry. Some corporations with options have moved their business to other airlines, while others have few choices. Indeed, AC has publicly stated that because of its dominant market position, it was able implement its program against the wishes of CTMs.

A Marketplace Decision
In the leisure and unmanaged travel segments, the unbundling concept will succeed or fail based upon millions of individual purchasing decisions. Some consumers will like the different choices; others could feel they are being charged for services they are already paying for. Still others could become confused should all carriers eventually unbundle, adding great complexity at the industry level. As Procter & Gamble acknowledged in the 1990s, 27 varieties of shampoo on a supermarket shelf does not equate to consumer choice, but consumer confusion.

What's more, with such across-the-board unbundling, consumers may not have the ability to evaluate all air travel options available. These unbundled elements of air travel will not be reflected in the fare shopping entries, and as such, this approach inevitably impedes a consumer's search for low fares. As one does not see these "extras" until well into the transaction, a large sector of consumers will not start over in the quest for low fares by looking at alternative airlines. An economist will say that anything that increases "consumer search costs" invariably raises the prices paid.

This approach of product unbundling, which results in AC products looking less expensive in GDSs and web site shopping inquiries than will likely be the case after the extras are piled on, results in higher prices because 1) with search costs increased, more shoppers will just miss a de facto lower "all in" fare that includes the extras and 2) the game is literally bait-and-switch –- from an ostensibly lower fare to a higher actual fare.  

According to The Beat, Marc Rosenberg, Air Canada's vice president of sales and product distribution, believes, "Ultimately the goal, in our opinion, is to create such brand loyalty that they do not shop anywhere else." In other words, lack of comparison shopping will drive higher airline yields. BTC believes with the increased dissatisfaction among passengers, and renewed calls for passenger rights legislation around the world, airlines would be taking a considerable risk with this approach.

Managed travel is completely different. CTMs ARE the customer. They are the true representatives of their travelers and corporations that fund business travel activities. They have communicated forcefully the need for full airfare content, and access to the airlines' best fares. Why should an individual business traveler have access to the lowest fares when airline's best customers, spending millions of dollars, do not?

The negative collateral damage to managed travel programs resulting from unbundling and content fragmentation strategies are many.

Higher program costs: Without all fare options available to a TMC, in a single GDS environment, travelers may not always receive the lowest available fare options. Travelers who go outside an established program (i.e. do not purchase tickets from a preferred TMC or a preferred online TMC) risk purchasing fares without the benefit of comparison shopping and travel policy guidelines, and they can weaken other opportunities for a corporation to benefit from strong airline contract fulfillment.   

New workaround costs: New costs associated with travel agents securing fare offerings from airline web sites, then making changes by phone with the airline, followed by one-off billing, reconciliation and audit requirements will all result in higher transaction fees to some TMC customers. In addition, as the airline web sites do not generally automatically advise the travel agent who booked a reservation of a change in flight times. Thus, corporate travelers may not learn their flight is now scheduled to leave an hour earlier than the original time, or has perhaps been canceled on a particular date.

Booking tool adoption issues: Progress with implementation and adoption of automated booking tools can be stymied when such tools cannot access all airfare content. This is not a new issue, but travelers will be even more reluctant to learn and use these tools if the perception is reinforced that better fares are available on the Internet than through their corporate travel programs.

Compromised traveler security: Corporations need to know where their travelers are and how to contact them in a time of crisis. Airlines that entice travelers out of managed travel programs to airline web sites for special promotions or web-only fares work against corporate best practice policies with regard to traveler security.

Incomplete data: As content and shopping channels fragment, so do purchasing data and its quality and usefulness to prove airline contract fulfillment, or to negotiate new supplier agreements. It is true that a well-managed corporate T&E card program can provide supplemental data, but it is not yet an adequate solution.

Travel program integrity: Airline strategies designed to circumvent the corporate travel department with individualized, customized airfare offerings only serve to undermine the perceived efficacy of managed travel programs among travelers.

Some CTMs do have choices to move business to other Canadian and non-Canadian carriers and are doing so, as evidenced by the significant market share gains of WestJet. Others are calling for strategies to increase competition in Canada, as was done in the U.S. in the 1990s. Ultimately, if CTMs' needs are ignored, they will find alternatives.