Today is Mad as Hell About Hidden Fees Day. Full disclosure: I co-founded one of the organizations that created this event, so I have a horse in this race.
I’m also something of a contrarian. And one thing I’ve noticed is that, apart from a few soundbites, the airline position on fees hasn’t been fully articulated.
So I asked an airline to do just that, and it referred me to Jim Davidson. He’s the president and chief executive of Farelogix, a travel distribution systems company based in Miami. Here’s our interview. (Warning: Parts of this discussion may be a little techie for a general audience.)
Do customers have the right to an “all in” price for an airline ticket? And if so, when?
Absolutely, customers deserve complete visibility and transparency in the airfare shopping and buying experience. And contrary to much of what you hear these days, many airlines support this through newer XML connectivity to their reservations systems.
What’s stopping airlines from offering a full price right up front, then?
In most cases, the root cause of the so-called “hidden fees” is that technology – both on airline websites and even more so in agency distribution systems (i.e. GDS) – has not caught up to leverage the latest connectivity to airline systems that provides full access to this information.
Airlines seem reluctant to embrace price transparency. Is that a wrong impression?
I don’t believe that the airlines want to keep things the way things are today. This is demonstrated by the fact that most airlines continue to make significant investments in their airline websites for the purpose of changing the traditional workflow of purchasing travel. There is a very clear movement to evolve from commodity shopping, to providing the consumer with a more personalized travel product and corresponding experience.
What do you mean by that?
We are seeing a movement whereby the airline product choices or optional services are offered and priced based on who the customer is and the corresponding relationship that the customer has with the airline.
Variables such as frequent flier status, past travel experience, current trip status, as well as real-time inventory can increasingly drive the offer that is presented to a particular customer. This concept of matching a specific set of airline travel options with a specific traveler is often referred to as traveler authentication pricing or the Who’s Asking Pricing Model.
It is becoming increasingly common on airline.com websites every day. As evidence, compare the experience you have when you log into an airline site versus shopping anonymously.
Why are airlines doing “Who’s Asking”?
The motivation for this new, customer-centric pricing is very simple. The airlines need to get closer to and create greater loyalty with their existing customers. The airlines need to compete more aggressively for new customers. Given the history of marginal at best airline financial performance, the airlines also need to create new revenue opportunities.
Historically, airlines have only been able to compete on price and schedule. Within those two parameters, given that “schedule” is often limited by airport capacity, price was historically the only true competitive card to play, i.e. the proverbial Airline Price War.
But the problem there is that corporate travelers — the airlines’ bread and butter customers — realize limited or no benefit from airline price wars due to corporate policy limitations, inability to take advantage of airline offered promotions due to booking restrictions or preferred airline contracts.
And for the leisure customers, while price-driven shopping is clearly a strong motivator, the old model led to 100 percent commoditization of the airline seat and little to no brand loyalty.
How is “Who’s Asking” better?
The model opens up a new opportunity for airline and travelers alike. Consumers have more choice in selecting only the products and services they want or need, while the airline dramatically increases the ways in which it can reward and retain their best customers. The latter is achieved through unique, customer-centric offers or customer recovery benefits, i.e. services offered by the airline to selected customers during or after a bad travel experience.
Let me get back to the system we have in place now. Can you think of any other business that waits until the end of the transaction to quote a full price, particularly where the final price may be 30 to 50 percent higher than the base price?
Absolutely not, and flying consumers will clearly not stand for such a model in the airline industry. In fact I doubt many airlines truly support this workflow, keeping in mind their ultimate goal is building a strong, loyal relationship with the customer.
However I come back to the point made earlier, which is that the bulk of this can be solved if available technology is properly implemented both on the airline web site and through the GDS systems.
Should the government ever regulate fare displays? And if so, when?
This is, in fact, a critical point of distinction. I believe that absolutely, the government has every right to regulate and mandate full transparency and visibility for the airline product – in other words, consumers have a right to know what they are buying.
However, let’s not confuse transparency with distribution channel or product display.
Regarding these latter points, I do not believe government should interfere with how a company displays its product, nor how channel-specific points of sale are built, or furthermore, how an airline chooses to distribute its product across intermediary channels. After all, at the end of the day, we are talking about free markets and the rights of a supplier to elect the channels by which to sell its product.
What is the slippery slope argument on government regulation of fares? Is there really a chance we could return to a re-regulated, pre-1978 airline industry?
It boils down to free markets. Airlines sell a set of products and services, much like hotel companies or a myriad of other comparable examples. Consumers can choose to purchase, or not purchase, a specific airline product based on any number of factors.
By the same token, consumers can choose to build — or not build — brand loyalty to an airline supplier depending on that supplier’s capability to deliver quality products and services at the right price/value point for that consumer.
Why would the government interfere with this model? It would seem nobody would win in that scenario – consumers would have fewer choices, and suppliers would have less incentive to differentiate their products.
The Transportation Department has proposed several new price transparency rules. Which one do you think would cause the most harm to the airline industry, and why?
The most harmful of the proposed regulations concerns the concept of government attempting to control how individual airlines choose to distribute and sell their product in various channels. This is an entirely separate issue from transparency.
Would it be fair to assume that what’s bad for the airline industry is also bad for their customers, when it comes to ancillary fees?
Absolutely, yes. What is bad for the airlines would translate into a lower quality product and level of service for airline customers. This goes back again to the concepts I mentioned earlier, regarding the airline movement to a Who’s Asking Pricing Model, or traveler authentication based shopping.
Put simply, the airlines are seeking to customize a product/service offer that aligns fully with individual traveler preferences, trip status and loyalty – a goal which, based on today’s personalized-shopping marketplace, is entirely consistent with today’s mature and discerning marketplace.
If the government or other forces step in and prevent this evolution, all sides will suffer – meaning the airlines will be forced back to a commoditized product status, and consumers will lose the opportunities afforded by brand loyalty and preference-driven shopping. We’ll be back to, “which pencil do you want, the yellow one or the yellow one?” and I sincerely hope we are collectively moving beyond that model.
Do you think there’s anything the airline industry is prepared to do voluntarily to be more transparent with its pricing?
Absolutely, and in fact this is already happening. A growing number of airlines have invested in technology to equip both their airline.com sites as well as indirect (travel agency/GDS) channels to advise consumers of what optional services are available to them either for free or for a fee (often variable based on traveler status or other factors such as trip status, e.g. delays).
The rollout of this newer, Who’s Asking pricing model is being more quickly noticed on airline websites sheerly because this is airline-controlled and therefore capable of faster technology implementations; other channels (indirect/agency/GDS) are dependent on adoption of newer XML-based airline connections.
New standards organizations, such as Open Axis Group, provide the foundation for any indirect channel seeking to migrate to this newer technology, and it is my hope and belief that we will see more mainstream adoption of this across all channels in the next six to twelve months.
Update: Here’s Davidson as a bobblehead.
(Photo: jay Raz/Flickr Creative Commons)