BTC Invites Views on Airline Pricing Policy

What is the impact of airline unbundling of fares, the expansion of baggage and seating fees, and a la carte pricing? Will they work or alienate travelers and complicate the lives of travel agents? These are among a few of the questions the Business Travel Coalition (BTC) hopes to answer in a position paper now being drafted.

Kevin Mitchell, chairman of the BTC, is now soliciting help of travel industry experts from North America and Europe on the paper that confronts the future of airline product-feature unbundling, repackaging and ancillary fees.

“We welcome input from travel agents and travel industry colleagues and hope they will participate in a review process of the paper and offer feedback,” Mitchell told Travel Agent. “Airline unbundling policies impact everyone – consumers, agents, corporate travel managers and GDS as well as government regulators.”

Noting the proliferation of services fees, IdeaWorks, a research firm, estimates that ancillary revenue and a la carte pricing in 2008 delivered $10.2 billion in revenues to the airlines. IdeaWorks surveyed 92 airlines worldwide and said ancillary revenue jumped 345 percent in 2008.

The BTC paper will seek to answer the following questions:

1. Will unbundling and tailored repackaging of existing and value-added new services likely end up a historical footnote with anti-consumer overtones, or like banks, other retail financial services firms and telecom companies that first unbundled and then repackaged product features, could a new and sustainable business model for the airline industry be at hand?

2. Thus far unbundling has caused significant new complexities and costs as well as obstacles for effectively managing corporate travel programs, including for TMCs; should airlines support efforts to emplace systems and processes that address problems currently caused by the rapid expansion of unbundling and ancillary fees?

3. GDSs claim to be ready to provide sales-merchandizing functionality to support airlines in introducing packages of services and fees at the point of sale but claim that the airlines will not pay them for the privilege of being able to sell unbundled services; how should the economics work?

4. Will airlines squander a potential major opportunity with indifference to consumer interests? Will this cause passenger advocates to argue unbundling 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? Could this result in higher prices because with search costs increased, more shoppers will just miss a de facto lower "all in" fare that includes the extras and the game could be viewed as bait-and-switch - from an ostensibly lower fare to a higher actual fare?

5. If repackaging product features represents a new business model opportunity, what support do airlines require from buyers, distributors and other market participants, and vice versa, to make a transition successful and equitable for all stakeholders?”

Mitchell said that peer reviewers will have the option to remain anonymous, or to be listed as a Position Paper Reviewer. Those reviewers who disagree with the thrust of the paper will have the opportunity to provide up to a 1,000-word dissenting opinion that will be appended to the final paper.

Participants in the peer-review process should e-mail BTC and provide name, title and organization, Mitchell said. Email: [email protected].


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