How we buy plane tickets and why it's ruining air travel
If you want to place blame for tarmac delays, bad airline customer service, and nickel & diming fees -- look no further than how you yourself purchase plane tickets. As consumers, we choose to purchase services based on any number of criteria that are important to us. In return, suppliers of these services cater their strategies to try to meet our needs and win that business.
If we purchase things as a commodity, it will get sold as a commodity. Plain and simple.
So why is air travel, among the most differentiated experiences we have in the normal course of life, purchased by so many people as a commodity? I have a few ideas I'll share below, but some of you may even disagree with that premise to begin with, so let's start there.
If you go to an airline revenue management conference, you will see smart folks from industry and academia talk about complex consumer choice and yield management models. All of them have the same basic premise: Two things count when there is a customer "arrival" (e.g. someone checks a fare with intent to purchase): The first is price, the second is schedule. Everything else is a distant third.
Now the folks reading this are most likely frequent travelers like myself. We are counting our elite status qualification miles on a weekly basis and have flown so many airlines so many times, we know who we like. We also might optimize to catch a ride on a 777 transcontinental (hopefully not this one) or endure a layover in DFW instead of O'Hare because the view of the field is so great from that people mover. But even we are pulled by price. How much more am I willing to pay to fly one airline over another? $20? $50? $75?
But after a flight, even us frequent travelers are known to talk about the adventure. Was it bumpy? Did the captain tell a joke? Was the FA nice? Did the gate agent say something mean? Did you get a movie? And of course, how late was it? Your flight experience often outlives many other aspects of your trip, even when it wasn't particularly eventful.
Why, then, do we buy tickets based almost entirely on price? Here are some ideas:
1) Perishable experience: Flying is, when all is said and done, just getting from point A to point B. It is a small part (time-wise) of your travel experience. If you're going to a meeting, on vacation, or visiting family or friends -- those visits and meetings are what you're focused on. Getting there is just an enabler. So while you might rather a better experience (who wouldn't?), it's a relatively short-lived perishable experience. Once you land, you're there. Done and done. A hotel, on the other hand, lasts your entire visit. A shirt, a bike, a car, a smartphone -- all of those are non-perishable things you live with for months or years. A flight is a few hours, tops. So even though you know you want a good experience, it's hard to justify the spend.
2) Booking vs. Experiencing: You usually buy plane tickets weeks, sometimes months, before you travel. It's like making reservations for the theatre or a sporting event in advance. You are buying the service well before you are experiencing it, so it's hard to feel the value of different offerings in a tangible way. If you bought all your plane tickets walk-up to the ticket counter right before you fly, you might think differently about that purchase. Similarly, when you get off the plane, you aren't just then buying tickets for your next trip. When you are upgrading your smartphone, you are doing so while you're still using your old one. So if you're unhappy with it, you really want a better one and that's a tangible feeling. You may have had a rotten flying experience, but a month later when you go to buy your next ticket, it doesn't quite feel as raw.
3) Inconsistency of experience: People generally get a feel of the different experience between a Spirit and United trip (or do they?). But what about United vs. Delta? Or even Southwest vs. American? The reality is that the best flight in Spirit is far better than a bad flight on United. You may have a bad experience on one airline on the outbound trip, and then have magical experience on the return. Airlines, as large companies with tens of thousands of employees located all over the world (and many more contracted workers) do not provide a consistent experience. Even when it comes to planes, the same applies. Do I have inflight entertainment? Is my seat pitch 31" or 33"? Am I on a small regional jet or a wide-body? With the exception of some of the LCCs (namely Virgin America, JetBlue, airTran, Southwest, and Spirit in the US), your physical plane experience varies so much. And even then, the little policies (when can I pull out my iPod after taking off? when will the seat-belt sign come off? How are we boarding, by rows or by zone? Can I get an exit row seat for free?) seem to change even within the same carrier depending on station and staff. How can I be expected to pay more for an experience when I don't know what I'm going to get? The variability is WAY too high. Imagine if a Starbucks mocha tasted a little bit different in NYC as compared to SF? Would that impact your desire to pay $3.50 for a small drink when you're in a different city? You bet it would.
It turns out these together are very good reasons for purchasing based on price. Ironically, it was the airlines' own GDS technology that has fueled this since the 1980s. It used to be hard to get good price comparisons and travel agencies would affiliate with specific carriers. So part of your choice of carrier would depend on your travel agency -- and of course that was a differentiated experience and a local storefront. GDS fueled much easier price comparisons which made it simpler to choose based on price. Orbitz (owned by the airlines!) fueled the internet age in the same way. These tools made it easier for airlines to compete effectively against each other on price, but also made it MUCH easier for the consumer to choose based on price. Look at the difference between any flight search tool and hotel search tool? For flights, you get a listing of flights by price and time. For hotels, you get maps, photos, stats, etc. Can you imagine choosing just the cheapest hotel available, even if you had never heard of it? Yet everyday people buy tickets on Sun Country, Spirit, and USA 3000. I'm not saying these are bad airlines (they aren't at all! I've flown Sun Country and really enjoyed it), but people are choosing them even though they don't know them because they are the cheapest. That's as commodity as it gets!
The impact of this is near catastrophic for an industry with so many aspects of the "product." There is very little incentive for airlines to improve or invest in their product since people aren't choosing based on it. Yes, you don't want to get significantly behind others (because than people will see a difference despite variability), but aside from corporate contracts, it's hard to show a positive ROI.
Airlines still spend money also on marketing campaigns touting their new fleets, wi-fi on board, or on-time performance. Building that brand equity is a good thing for the long-term, but at the end of the day they are enticing people to fly with them over their competitors at the same price -- NOT enticing them to pay more to fly them. If you look at RASM (revenue per available seat mile) or RPM (revenue per passenger mile) -- the standard metrics for yield in the industry -- you'll see basically 3 tiers:
Tier 1: The discounted LCCs: e.g. Spirit, Allegiant. These guys are slimming down the product to save costs and traditionally only compete on price.
Tier 2: The product-oriented LCCs: JetBlue, Virgin America, Southwest. These guys have great products, but also low cost base, so they get a mid-level yield higher than that of the discounted LCCs, but not representative of their global reach or corporate contracts.
Tier 3: Network carriers: American, United, Delta, etc. They get a yield premium over the other tiers, but it's hard to establish a sustainable yield premium against each other.
(note a lot of this data is available for easy viewing at the MIT Airline Data Project). One thing to understand here is that despite there being three tiers, it doesn't necessarily represent a a differentiated environment. The network carriers have business class, allowing higher yields. Route mix is also a big factor in yields -- international routes vs. domestic, business vs. leisure, etc. So even these differences in yield can be explained by factors not related to airline brand choice.
So why is this bad for aviation and what do we do about it?
The commodity phenomenon has created a perverse incentive system for the airlines. It means the activities that drives their business the most is cost cutting and ancillary revenue generating. Neither of those are productive for the industry. Yes, keeping cost low is a critical discipline, but competing for how low you can go means a disgruntled workforce, an underinvestment in capital equipment, and an operation without the appropriate protective capacity. Generating revenue from ancillary sources creates hassle and inconvenience for the traveler, and an inability to understand the "total cost of the trip" until it's complete. This creates yet another incentive for the airline: Hide fees as much as possible. After all, when you purchase your next ticket, you are still likely to choose the cheapest option and forget the $25 you forked out on-board. By shifting revenue to the travel experience, you not only can earn more, you can lower your base fares to compete more effectively against others. This is a reinforcing cycle -- and is not likely to let up any time soon.
In summary, all the things we (and the DOT) complain about, are a result of these two phenomena: Increased delays (tarmac and otherwise), bumping passengers, accommodating passengers during disrupted operations are all the result of cost cutting. And of course the hidden fees, opaqueness of total cost of the trip, etc. are the result of finding ways to add ancillary revenue.
This is all a very rational response from an industry trying to make a buck off a commodity product.
Here are a few thoughts about what we can do about it:
1) Better shopping experiences: The consumer needs a better view of options so that they can, just maybe, have the ability to know what they are getting for their money. One guy is trying to do this -- Dave Pelter of Inside Trip. He understands this perfectly and senses the revolution coming where consumers may just make better choices about flights based on things other than just price and schedule. He has identified 12 other features and wants to provide this to GDS. Of course the big airlines and GDS are resistant to this because it's an unknown. But at some point (I hope), consumers will demand it. We also need better options for total cost of the trip, including potential fees. Several OTA's and meta-search sites are working on this (as is GDS). I haven't seen a good solution yet, but this space is new and my guess is we'll see some decent options in the coming months. These tools can help sway some of these commodity purchasing behaviors by at least allowing consumers the choice to think differently (turn air travel search results into more of the hotel view).
2) Fight DOT regulation: When the DOT micromanages the industry, it means all airlines sink to the bottom and stay there. It prevents differentiation, because it sets a standard (low OR high) for which all airlines meet. For example, without the 3 hour tarmac rule -- the DOT and others could have promoted massively who was keeping passengers on planes and who wasn't. That could have been a sustainable point of differentiation (e.g. JetBlue's Customer Bill of Rights predates DOT regulation and could have been a great point of differentiation -- arguable if they executed on it well). Instead, all airlines have to comply, destroying any point of comparison. Now the regulations around disclosure are better aimed, but still, it mandates airlines to have a certain level of customer service. Why not allow some airlines to do it and others not? The surface reason is because none will! That being said, DOT rules do not help establish point of differences between airlines, they only reinforce the concept that they're all the same -- doing just what they have to do and nothing more. If you take this logic to the extreme, you might argue even safety regulations shouldn't be required -- that would allow travelers to choose airlines based on safety. Would you pay $100 more knowing your plane had better maintenance? Or would you pay $100 less knowing your plane had less maintenance? There is good reason why the DOT shouldn't allow this, but at least hypothetically, one can see the value to allowing consumers to choose based on quality.
3) Embrace consolidation over code-sharing: This might be counter-intutive -- after all, fewer players means higher fares and fewer choices. But think of it this way: The 3 alliances now represent 3 choices of legacy carrier on any given route. Instead of 6, we now have 3 (okay, technically 4 with US Airways). It cuts down noise and confusion when purchasing tickets, especially since they were all selling tickets on each others planes anyways! Since LCCs have the best chance of differentiating themselves, it will be easier against a smaller crop of legacy carriers.
4) Promote LCC proliferation: Remember the tiers? Well the more LCC competition we have on routes, the more the legacy carriers (and LCCs) will try to differentiate themselves. That means better loyalty programs from the legacy carriers, and more perks from the LCCs. Yes, there will be price matching also, which is good. But what would be even better is if one of the legacy carriers figured out how to deliver a consistently good customer experience to try and win travelers vs. just price match.
I think there is room for one carrier (big or small) to make a real mark by creating a consistently better experience and thus gain a yield advantage. It's hard, for sure. But it has to do with more than surface things -- it has to do with protective capacity in the operation to reduce delays and cancellations, more staff at gates to create a better experience, and more consistent inflight experience. Taking the "hassle" out of flying has real value, and I'd love to see one airline spend money to make that happen in a consistent and sustainable way. Virgin America is probably doing this the best today and I look for their expansion as proof that this can work.
In the meantime -- it's up to us, consumers, to voice our issues with the industry. If we show that we're willing to pay according to product, we will see a drastically different environment open to us. But until we do, we're just promoting the cost cutting and ancillary revenue driving / hidden fee proliferation that airlines are engaging in. Don't place the blame on them, place it on us.
Posted by Evan
