These are not the best of time for consumer watchdogs.
Many of the most celebrated TV reporters who focused on consumer affairs have been let go, reports the Los Angeles Times. That’s not just bad news for the talented journalists who used to look out for you — it’s bad for all of us.
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Mike Simonetto is the principal and global leader of Deloitte Consulting’s pricing and profitability practice. With airlines and other travel companies testing our willingness to pay fees, I wanted to ask a pricing expert like him why travel companies were doing this and where it’s all headed.
How did unbundling and a la carte pricing get started in travel?
It’s easy to view this as the big bad airline taking advantage of the travelers.
This is an extension of revenue management. I should define revenue management for you: Travel companies have high fixed asset costs. You’re trying to use those assets as much as possible. For example, a hotel room is a time-perishable product. If it doesn’t get rented this evening, it will never be able to get rented again. So any revenue is better than none. That’s revenue management, and that that originated with American Airlines 30 years ago.
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Bad news: Business travel is flatlining, and will continue to flatline for the next four years, according to a new projection from Egencia and the National Business Travel Association. More bad news: It’s probably going to affect your next vacation.
Why? Because business travelers subsidize discounted rates that leisure travelers pay. Have been for a long time, actually.
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In a word: wait. But not too long.
I’ve been getting this question a lot, and I usually refrain from making predictions. No one really knows how prices will fare.
But look at this. These are oil prices during the last three months.
This is the Dow Jones US Airline Index. Remember, stock prices reflect the anticipated future performance of a company.
Here’s the Dow Jones US Hotels Index.
So what does all of this mean? Well, Wall Street is betting that airlines and hotels won’t be as profitable in the near-term (or, perhaps more unprofitable, in the case of airlines). Combine that with lower energy costs, and it’s hard to argue that rates and fares will go up. In fact, the best deals may be just ahead.
If I were a bettin’ man, I’d wait until early 2009 to book my vacation. But don’t hold off for too long. It looks as if oil prices and the major indexes are looking for a bottom.
