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A Quick Word about Bundling Airline Fees

Add travel agents to the list of people annoyed at the ever-growing list of ancillary fees being charged by airlines.  In their case, they are annoyed about the amount (and difficulty) of work required to add ancillary services to the tickets they’re booking for clients.  Plus, they’re not getting paid for providing these often time-consuming services.

At this point, just about everyone, from consumer to travel agent, dislikes the way airlines have implemented fees.  Consumers feel they’re constantly being asked for $15, travel agents feel they’re not getting paid for the services they provide, bloggers have to listen to people whine about bag charges (OK, that last part isn’t the end of the world).

My issue is not around the fees themselves — God knows the airlines need revenue wherever they can get it.  My issue is that they have done a terrible job from a pricing standpoint.  By breaking out every fee individually, consumers are left feeling two things about their airline transaction:

1) They are hit with feels at every part of the process.  When buying a ticket, when picking a seat, when checking a bag, when on the plane.  There is no escape from the feeling that your wallet is out the entire time.  That is not a good feeling, even if, as is the case, airfares are quite low (except for summer travel to Europe this year which is out of control expensive…but that’s a different story); and

2) They have no idea how much the total trip will cost.  That is not a good feeling.  People need to understand the total cost to determine whether they’re getting fair value for their price.  Once that initial purchase is made, the consumer has already made up her mind.  Adding additional charges once the purchase is made only makes customers re-consider the value proposition.  That’s why people feel they’re being taken advantage of (allow me to apologize here for that dangling preposition).

Car companies went through this years ago with the myriad options available on their cars.  They decided that offering bundled packages of options led to a win-win situation:  They could make a greater profit by obscuring the price of the individual package components, and consumers wouldn’t feel like they were seeing a lowball price on the base car only to be attacked with added option costs.  Nowadays, most car consumers simply pick a package of options.

A recent Harvard Business Review blog post addresses this by suggesting that unbundled pricing (the airline scenario) benefits consumers because they know the true cost of components, while bundles benefit the company because they can make higher margins by obscuring the price of each part of the product.

This is true, but it leaves out the value consumers receive in feeling like they’re getting a fair deal.  I’ve mentioned several times how much I admire Air Canada’s choice of offering 5 bundles — consumers do not walk away from the purchase with the anxiety and frustration many feel with every other carrier.

I fully understand that the ability to offer bundled services for airlines (ie, a fare class that will give you airfare, 1 checked bag and wi-fi) is reliant on technology that is not ready out of the box.  But Air Canada made the investment, and so could other carriers; they’ve simply chosen not to.

We’re at the beginning of the new reality around how airlines price their product, and I know that in 5 years we’ll likely be closer to a bundled strategy for most tickets.  But until airlines choose to invest in selling their product in a bundled fashion, consumers will continue to be frustrated with every purchase.  That will not benefit anyone in the long-term.

Until JetBlue came along new entrant airlines tended to compete on price; their sole value proposition was around lower fares.  Airlines could match those fares within minutes, and doom was impending for the new entrant almost from the moment they launched.  JetBlue changed that by competing on services, and it took airlines years to catch up (10 years, as Continental is just now putting TV in their planes, and few other airlines have developed the employee culture JetBlue has to offer).  Now, I believe a new entrant airline could compete by offering a JetBlue/Virgin America-type service combined with a bundled pricing offering that would allow them to offer consumers an anxiety-free pricing experience that is considered to be high-value to the customer.  That’s a niche they can enjoy for years.

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  1. Bundled services, eh? But that gets us almost back to square one. I do want to check a bag, but I don’t need WiFi, so why should I pay for it? Where’s my bundle that gives me a seat, a bag and a drink, but no WiFi?

    And yes, it also upsets me when Comcast forces me to pick a cable “bundle” that includes fifteen channels of ESPN even though I don’t give a rats’ behind about sports.

  2. I hate being hit with feels.

  3. With how the airlines are pricing themselves, they are pushing the travel agents farther away until the time comes that agents won’t even care about ticketing anymore.

  4. Airline fees: If you can’t beat ‘em, bundle ‘em | Upgrade: Travel Better - pingback on March 24, 2010 at 9:03 pm
  5. I feel that a lot has to do with the user interface when booking the flight. It’s much better if you can see on a single page what ALL the options are and you see the price update right then and there. This is what Air Canada has. I hate to have to go through 5 different screens before they show me the final total. But even with AC, I think there could be improvements. If I can stay on a single page and click a checkbox for wifi, select number of bags, etc and have the total updated (ajax-style) without a browser refresh, that would be best. So, you’d first select your flight, depending on cheapest, timetable, whatever. Then you’d play with the variables: number of bags, wifi, extra legroom, choose your seat, prepay for food onboard, etc. BUT you stay on that single page and you get the FULL total with taxes immediately. Immediate gratification. Travel agents would benefit too because they could quickly click and give an updated price to their clients over the phone, etc. Without having to go through a 10 step process/screen-flow each time they want to try another combination…

  6. I should clarify: AC doens’t give you the total WITH TAXES until the very end, I hate that part. But I like the way you can see ALL the flights and prices (including lowest prices or previous 5+ days and following 5+ days). And you see ALL the flights for the chosen day, including ALL possible connections and ALL prices for all those flights on a single page. No need to search, research, re-re-search through some other routing. It’s all there in front of you (and both the outbound and inbound flight). I love that.

    I would compare the frustration with the car companies’ “build my car” web pages. They end up giving you estimates of your car payments but most of them don’t include the taxes (and unless you look closely, you don’t really notice at first because there are so many numbers: transport, preparation, enviro fees, etc. etc.). And, in canada, with sales taxes at 13% [provincial + federal], this can totally change your final decision if you didn’t notice that important part and only realize when you’re sitting at the dealership with an extra 60$ per month in taxes (the “duh” moment that I have to admit just happened to me)… And then you go “huh, maybe we should start our shopping all over again and rethink what models we should be looking at”. And then maybe not, let’s keep the old car… Which is what we ended up doing. It’s just wrong… Show the REAL total.

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  • Airline fees: If you can’t beat ‘em, bundle ‘em | Upgrade: Travel Better - Pingback on 2010/03/24/ 21:03