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BTC Warns of Consumer Backlash Against Airline UnbundlingFebruary 23, 2009 By: George Dooley
The Business Travel Coalition (BTC) applauded US Airways for listening to customers and abandoning its policy of charging for onboard beverage service and warned that airline unbundling could bring government intervention.
“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,” the BTC said in a statement. “However, sensitivity to and protection of consumer and corporate travel managers’ interests require new levels of commitment by airlines.”
The energy crisis of 2008 gave airlines little choice but to risk some consumer backlash and experiment with unbundling its products and services. The falloff in traffic due to ongoing economic problems certainly presented a larger issue than near-term concerns regarding consumer resistance to unbundling. As a result, the U.S. airline industry is now irreversibly committed to a path of some level of unbundling.
However, BTC warns that careful thought needs to be given to the implications for consumers and corporate managed travel programs where unbundling could lead to unnecessary complexity and confusion. Additionally, if the consequences for consumers are not addressed, this initiative could further fuel the passenger-rights movement. Ultimately, the success or failure of the unbundling concept will be determined by millions of individual purchasing decisions as well as competitive responses. Some consumers may value the different choices; others will feel they are being charged for services that should be included in the price of their tickets, and still others may become confused by the sudden multitude of options.
BTC added: “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.” The concept could be seen as a bait-and-switch tactic as initially low fares could end up costing much more once all the extras are accounted for.
Managed travel is completely different, BTC said. “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.”