Brussels and Washington Are Watching!
By Kevin Mitchell
Chairman, Business Travel Coalition
Delta Air Lines currently benefits from more than $2 billion dollars in annualized sales of ancillary services (e.g., checked bags, advanced boarding, premium seating) and it now seeks to increase such sales by $1 billion dollars by 2014. This admirable goal was no doubt a factor in Delta’s announcement this week that it will reverse course and begin providing to some travel agencies a premium seating option for sale to consumers.
This development validates Jim Young, Executive Director of the airline financed Open Axis coalition, when he acknowledged to The Beat last year that existing technology is not the problem when it comes to enabling travel agencies to sell ancillary services. Delta is smart to take this small step in the right direction as the corporate managed-travel community as well as all consumers value being able to see, compare and buy such services on a one-stop basis. Hopefully checked bags are not far behind.
Robert Crandall, retired Chairman of American Airlines, thinks the airlines will serve both themselves and consumers by offering comprehensive information to customers. “As we all know,” Mr. Crandall said, “consumers do not hold the airline industry in high regard, despite the extraordinary job the airlines have done of providing the public with safe and affordably priced transportation services. I don’t know why the airlines seem so opposed to disclosing information on the websites consumers use, since consumers will find out the real cost of travel when they actually fly, and I should think that taking away a source of aggravation for their customers would be high on the industry’s self help list. Why make your customers angry when you have nothing to gain?”
Such obstructionism is harming consumers and corporate travel programs; attracting the attention of regulators and legislators in Washington and Brussels; and is no doubt dampening demand for ancillary services. As a percentage of operating revenue, ancillary fees are now trending flat. Airlines have a closing window-of-opportunity to satisfy consumer demands, ward off legislation and grow revenues. However, leadership must replace obstructionism.
There are two routings airlines can follow.
The first and largely followed route today is to withhold ancillary service and fee information from the travel agency distribution channel, and by extension, to deny agencies the ability to offer and consumers to purchase these services. This undermines the customer value proposition for travel agencies and creates inefficiencies and other problems for them and their customers. Likewise, the prices of these services are artificially high as they are not being disciplined by the marketplace by a comparative presentation of multiple airlines’ all-in offerings (fares and fees).
The second and less followed route is to respect the needs and interests of consumers and corporate travel managers and provide ancillary services and fee information wherever consumers choose to shop for airline tickets and wherever individual airlines choose to sell their tickets. In other words, to provide consumers with the fee information and ability to assemble and purchase, on a one-stop basis, what constitutes a complete air travel product for a given trip.
As the five-year anniversary of stonewalling on ancillary fee information approaches, with increasingly harmful impacts to consumers, the U.S. government is poised to act. While the U.S. DOT is expected to initiate a rulemaking this November addressing the ancillary fee problem, the U.S. Congress might not wait for that entire process to play out. The heavy summer air travel season has barely begun and already Members of Congress are hearing complaints of families with children being forced to pay for seats in order to sit together against a backdrop of misleading and deceptive airline marketing practices.
In a year when the vast majority of Members of Congress are up for reelection, hope that there will not be an event that galvanizes Members to act on ancillary fees is not a strategy. It is Congress’ prerogative to debate and determine what constitutes the commercial air transportation product, which could lead, for example, to a definition that it includes adjacent seating for families as well as one checked bag per ticket purchased. Congress could also move to ensure that all ancillary services revenues are taxed to keep the Airport and Airway Trust Fund flush, or to fund additional passenger protection programs. It’s in airlines’ best interests to avoid such a helping hand from Congress by solving the ancillary fee problem themselves and straightaway.
Whether it’s infrequent travelers surprised at the airport by hidden fees, costly disruptions for corporate managed travel programs or families being misled about available seating, these and other fee-related problems could easily, quickly and inexpensively be solved and in so doing render government intervention unnecessary. Airlines need only make ancillary services available and saleable for travel agencies and travel management companies that service the customer. That one simple step would eradicate the vast majority of the negativity surrounding ancillary fees.
A fair argument was made in 2010 before the U.S. House Transportation Committee that the first airline to provide fee information to travel agencies would look 20, 30 or 40 percent more expensive in travel agency displays, and therefore, such a move would amount to commercial suicide. However, since then, airlines have more fully developed their ancillary services platforms and know much more about how the new model works.
Instead of commercial suicide, a major airline has a real first-mover opportunity to solve this important problem for customers. Such leadership would not just benefit the airline by selling more ancillary services in more channels, but it would also likely provide increased market shares in all passenger segments as the market is currently seeking and would reward an airline that meets such well-documented consumer needs.
Treating consumers fairly is not mutually exclusive of the notion of expanding ancillary revenue. Actually, the inverse is more certainly true, i.e. the more consumers trust a shopping and purchasing process the more likely it is that they will buy more services more often. Over the long term, providing consumers with ancillary fee data will increase competition, create market efficiencies, encourage innovation, expand markets, increase sales of airline services and satisfy customers. These are outcomes that benefit all commercial aviation stakeholders.
I hope Delta fully steps up, seizes the mantle of leadership and exceeds its $1 billion dollar goal.