Warns unbundling could bring government intervention
Consumer groups, corporate travel community could unite
February 22, 2009, RADNOR, PA--Business Travel Coalition (BTC) today applauded US Airways for listening to the customer and abandoning its policy of charging for onboard beverage service. US Airways’ experiment with strategies to generate new revenue streams was a rational response to the economic conditions facing the airline industry, especially during the jet-fuel price crisis of last summer. However, sensitivity to and protection of consumer and corporate travel managers’ interests require new levels of commitment by airlines.
The risk for the U.S. airline industry in unbundling its products and services was consumer backlash. The energy crisis of 2008 gave airlines like US Airways little choice but to take some risk and experiment. The falloff in traffic due to the ongoing economic malaise certainly dwarfs most near-term concerns regarding consumer resistance to unbundling. There is little doubt that the U.S. airline industry is now irreversibly committed to a path of some level of unbundling. However, this direction is fraught with risks over the mid and long terms.
From an airline perspective, an unbundling strategy might seem rational at the firm level, i.e. developing new revenue streams and being able to post a net fare that makes it appear competitive with low-fare carrier offerings. However, careful thought needs to be given at the industry level vis-à-vis implications for consumers and corporate managed travel programs where complexity and confusion could reign and government intervention on behalf of consumers could be the undesired result for airlines.
PASSENGER RIGHTS LEGISLATION
If the consequences for consumers are not thoughtfully considered and addressed, then it is likely that this initiative will further power the passenger-rights movement. What’s more, that movement may be joined and strengthened by the corporate managed travel community. BTC testified in Congress in 1999 and 2007 against government intervention in airline customer service policies and practices, but no position is necessarily permanent; airlines have an even higher hurdle today to prove that they can self-police their participants’ policies and practices.
In the leisure and unmanaged travel segments, the unbundling concept will succeed or fail based upon millions of individual purchasing decisions as well as competitive responses. Some consumers will value the different choices; others will feel they are being charged for services they are already paying for in the price of their tickets. 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 often 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 necessarily 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 segment of consumers will not start over in the quest for low fares by looking at alternative airlines. Economists will say that anything that increases "consumer search costs" invariably raises the prices paid.
Consumer and passenger advocates could argue unbundling, which results in airline products looking less expensive in GDSs and website shopping inquiries than would 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 could be viewed as bait-and-switch –- from an ostensibly lower fare to a higher actual fare.
CORPORATE MANAGED TRAVEL REQUIREMENTS
Managed travel is completely different. Corporate travel managers ARE the customer. They are the true representatives of their travelers and corporations that fund business travel activities. As the airlines’ best customers they have communicated forcefully the need for full airfare content and access to the airlines' best fares in the distribution channel of their choice. The unbundling model should not introduce inefficiencies in the form of higher costs to travel management companies and the corporate customers they serve. The potential negative collateral damage to managed travel programs resulting from unbundling and content fragmentation strategies are well documented.
Airlines would be well advised to not drive the corporate travel community into the open arms of those well-intentioned groups and members of Congress who would rather legislate solutions to airline industry problems.