The unbundling of airline products and the selling of core services (i.e. checked baggage, advance boarding and seat selection) that were previously included in base airfares is a trend that is here to stay, says the trade group Open Allies for Airfare Transparency. The benefits of unbundling for consumers and travel agencies - if transparent - are real, Open Allies says in a new analysis.
"Prompted by losses of tens of billions of dollars over the past decade, and soaring jet-fuel prices, airlines aggressively began charging for checked baggage in 2008 and expanded unbundling to include many other services. The revenue stream created from unbundling has turned into a flood, projected to generate more than $32 billion worldwide in 2011, including $15 billion in North America," Open Allies says in its analysis.
"That stream has helped most airlines to navigate through a volatile jet-fuel pricing environment and somewhat repair their balance sheets."
"What is perhaps lesser known is that unbundling can also benefit other key elements of the travel distribution chain. That would include travel agencies, travel management companies, global distribution systems (GDSs) and, of course, consumers, including corporate travel buyers," Open Allies says.
"It is important to note, though, that benefits can only be achieved if unbundled services and related fees are fully disclosed, dynamically presented and salable. Unfortunately, this is not the case today. Airlines have simply refused to provide consumers with core services fee information in a salable format."
Consumers need to be empowered to purchase any chosen itinerary on an 'all-in' basis (fares, fees and taxes) at the point of sale of their choice, and where an airline chooses to offer its base fares. Meeting those conditions will ensure that the principle of comparison-shopping, a hallmark of airline industry deregulation, is restored and thrives in an unbundled world, Open Allies says.
Benefits are intertwined, Open Allies says."The benefits of unbundling for consumers, travel agencies and other parties in the travel distribution chain are intertwined with those of airlines. To the extent that more sales of core services are generated, distribution system participants benefit from additional revenues, as do airlines. For consumers, more revenues keeps more airlines in business, and produces financially healthier distributors and travel agencies, which means more choices at competitive prices (assuming transparency and salability) at all outlets where airlines choose to sell their products."
"Further, the incentive of enhanced revenues should encourage management teams at the carriers to move beyond merely unbundling their products. To some degree, they have started down this road through customizing offers to frequent flyers or other prime customers. But there may be further progress in designing demographically driven or otherwise segmented packages of services that would add great value to current and prospective customers."
"A case in point is the telecommunications industry which unbundled its product into a plain vanilla list of services that floundered and caused consumer confusion, before later developing packages of programming and services. There have been substantial benefits for consumers, device and software manufacturers and network carriers (not to mention a slew of suppliers). In other words, their entire supply and distribution chain benefited from the packages and competition generated among those carriers."
Air travel packages of valued services could have a similar effect. One example: a business traveler package of priority boarding, upgraded seating, carry-on baggage, WiFi, club access and loyalty program benefits. Another for families: adjoining seats, baggage carry-on or checked, WiFi, and meals. Combinations of services could be sliced and diced multiple ways for a variety of demographic segments, with price points dictated by airline policy and consumer demand. One could even envision third parties jumping in to offer adjunct services to these packages," Open Allies says.
"A byproduct benefit in each case would be reduced time tethered to a computer, or on the phone with a travel agent, hunting for just the right combination of services. The end result would be more satisfied customers, whether business or leisure travelers."
In conclusion, Open Allies says unbundling need not be demonized the way it has been in some corners. "It can clearly bring benefits to the travel distribution chain at all levels, including airlines, while offering more choice and more possibilities to the traveling public. But that can only happen if the fees for core services, whether offered a la carte or in packages, are fully transparent, dynamically presented and salable wherever airline tickets are sold," Open Allies says.
"Without the comparison-shopping that these principles enable, consumers and businesses in travel distribution will all take a big step back, and no one will benefit. Airlines might benefit in the short term from consumer confusion, but longer-term, continuing to deprive consumers of essential pricing information will only build more pressure on government legislators and regulators to intervene."
Open Allies for Airfare Transparency is a coalition of individuals, companies, and organizations that believe that all airline airfares and fees should be transparent and salable to the traveling public.
Open Allies members include more than 380 of the world's leading travel management companies, corporate travel departments, consumer groups and travel agencies.