The airlines unbundling of fees and ancillary services is a critical issue for travel agents, travel management companies and for the traveling public. The proliferation of fees – from baggage and seating to WiFi access – is raising real questions about the ability of agents to price air travel costs. For many it’s bait-and-switch rather than honest all-in-one pricing. Yet to others it expands consumer choice.
“Simply put, unbundling took off like a rocket in the U.S. in the past year such that the whole industry was caught off guard without systems and processes to properly identify, manage and control these expenses. The upshot for managed travel programs is more complexity and cost, incomplete data and travel policy confusion, as it seems that every week there is a new fee announced by some airline,” according to Kevin Mitchell, chairman of the Business Travel Coalition (BTC)
Mitchell’s concerns are reflected in his remarks at the CTD Conference in Chicago last week. A paper presented by Mitchell “Airline Product Unbundling and Ancillary Fees” asks if the unbundling trend is a short-term phenomena adopted by airlines to boost profits or a permanent change in the airlines business model. One conclusion: “Open minds, caution and continued analysis should be the path forward for now.”
“It is in all travel industry participants’ interests to find an economically sustainable business model for the airline industry, “ the BTC sensibly argues, “Airline unbundling isn’t necessarily bad, and can be a healthy, positive development for all stakeholders. However, if an airline attempts to tie unbundling and repackaging of value-added services to cost shifting, travel buyers should be wary, given past practices. The first time an airline successfully shifts the established economics of content accessibility, it will be just that – the first of many times”
Makes sense, but is it a slam dunk? Certainly the BTC is cautious. Among the questions raised by the BTC is if GDS’ are ready to cope with the proliferation of fees and if so will the airline pay them to sell unbundled or repacked services? Another question, the BTC asks, is what support do airlines expect? Is there transparency for the consumer? Delivery on promises? Will airlines shift costs? Will government regulators get involved in the issues?
The BTC asks if airlines will “attempt to force upon agencies the false choice of incurring the inefficiencies, costs and service challenges of implementing entirely new workflow solutions on the one hand, or incurring the costs and challenges of supporting a series of one-off supplier direct-connections on the other?
Now enter Amadeus and a ground-breaking survey conducted last year. “A significant majority of flyers dislike ‘a la carte’ fees, but more than half understand why airlines have introduced them and see value in paying only for what they want, “ Amadeus North America’s survey said. The survey, “Flying ‘A La Carte’: Consumers Dislike Fees, But Are Willing to Pay for Choice” captured how airline passengers feel about new fees.
"Over the past year we have really seen the emergence of an 'a la carte' approach in air travel. So we wanted to hear from consumers because they ultimately determine what flies and what doesn't in the marketplace," said Robert Buckman, director of airline distribution strategies for Amadeus.
According to survey results, the majority of air travelers (85 percent) dislike paying fees for services they received free as recently as a year ago. But it is telling that many consumers (52 percent) not only understand why airlines have embraced the ‘a la carte’ approach, but they also see value in the choices it brings to the flying experience.
Of the air travelers surveyed, 53 percent agree with the statement “I prefer the cheapest base ticket fare available so I can then pick and pay for extra services I want.” One in 10 say they do not mind paying for optional amenities individually. Only 18 percent prefer an all-inclusive ticket with its higher price. Less than one-third of respondents think airlines have gone too far with new fees.
“’A la carte’ is reinventing the airline retail experience for the first time in decades and creating an opportunity for airlines to deliver real differentiation among their competition and value for consumers,” said Buckman. "And consumers won't feel nickel-and-dimed if they are getting something they value, whether it is choice, convenience or simplification.”
There is strong sentiment that some items, especially checked bags, should remain free, the survey said. Half of the respondents indicate that ticket fares should include first or second checked bags. Seventeen percent indicate blankets and pillows should be free, while 15 percent want free seat selection.
Fifty-seven percent have or would pay for food and beverages on a flight and 37 percent have or would pay extra for checked bags. Additionally, willingness to pay extends outside the fuselage, especially when it means greater flexibility and convenience, Amadeus said.
Fifty-seven percent report that they would pay extra for the ability to make ticket changes without penalty. Nearly 40 percent indicate that they would pay for less hassle and more time savings in the form of priority check-in and boarding, priority baggage handling, and the ability to fly with an additional carry-on, Amadeus reported.
One positive response is the BTC’s joining with the London based Institute of Travel & Meetings (ITM) to form an international Industry Solutions Group (ISG) to develop and build consensus around standards and policies for airline product unbundling. A first step will be an Industry Position Paper will be presented and debated among Solutions Group members during the Business Travel & Meetings Show in London in February 2010. Members will include corporate travel managers, airlines, global distribution system representatives, airline alliance representatives, travel association executives and other industry stakeholders.
“This time last year analysts were projecting that unbundling checked baggage fees would be worth $400 million at the industry level in the U.S. on an annualized basis. It’s now north of $2 billion and climbing. Add in change-fees and other new ancillary fees and it’s over $4 billion in the U.S.; $10 billion globally. Some 150 potential airline or 3rd party services have been identified with estimates that within a few years the total of all these fees collected globally could reach $50 billion on an annualized basis (on a base of $500 billion in global annual airline revenues), the BTC estimates.
According to ITM and BTC, unbundling has caused significant new complexities and costs as well as obstacles for effectively managing corporate travel programs. “The industry got way ahead of itself with unbundling and ancillary fees in terms of not anticipating how far and fast it would spread, and in terms of not having the technology, administrative, accounting and auditing processes and systems in place to manage it.” The BTC analysis says.
“Never has there been an opportunity for such serious bedlam in managed travel. Corporate managed travel is on a certain path toward mass confusion and disruption as momentum builds behind this new industry trend,” BTC and ITM argue.
Mitchell welcomes input from all quarters including travel agents: For background: [email protected] or www.itm.org.uk Let them know what you and your clients think.