The aviation market is under tremendous cost pressure, with not only high fuel prices but a softening economy impacting air travel and causing carriers to slash capacity. And these factors are pushing carriers to become quite dynamic in their day-to-day operations.
Price sensitivity is one of the airlines’ key concerns. The secret to an airline’s success is being able to satisfy customer demand while meeting operational costs. Carriers are diversifying how they derive their income, leading some down the path of charging for baggage, seat assignment, or other formerly “free” options. What we are really seeing is the push for ancillary revenue being born out of economic necessity.
But the à la carte model in air travel, if approached strategically, ideally places the customer at the heart of an airline’s business. The consumer argument in favor of à la carte is that it really represents value-added service. Is it nickel-and-diming when you are exercising choice and paying only for services that you want above the base fare price?
In fact, if customers have been paying consistently for a service — like an airfare that includes free baggage check-in — and then suddenly airlines start charging for baggage check-in without making adjustments elsewhere to the base fare, then it might look like nickel-and-diming. But as carriers start to think more long-term about ancillary revenue, they will begin to better understand their entire product offering. By “unbundling” everything that they used to charge for in the price of a ticket, they might look at adjusting the base fare downward. Then they can price various options individually and thereby ask the customer, “What do you value? What are you willing to pay for? What is and isn’t important to you?”
A good example is airline meals. In the past, consumers used to expect and get meals on every flight. But what was the quality like? Fair or not, airline food has been the butt of many jokes over the years. Today what we see is that the airlines have identified that the consumer didn’t value that meal service, yet it represented a significant cost to the carrier.
So now carriers have an opportunity to replace that, perhaps with a better brand or selection, so that maybe the customer is willing to pay a $7 premium to have a good meal. And that strategy goes a long way toward enhancing the brand value and brand image of the airline.
And also leaves everyone full and happy.
Airline Futurist • Miami • www.us.amadeus.com