The Airline Market Is Not Working
June 19th, 2012

By Paul M. Ruden

SVP Legal & Industry Affairs, American Society of Travel Agents, Inc.

Imagine you are in your favorite supermarket, but this time something is different. The overhead index says “Bread – Aisles 2, 5, 8, 11, 15” and Milk says “Aisles 1, 4, 9, 13, 16” and so on.  The owner has the idea that if he makes it harder for shoppers to compare products and prices, more will buy higher priced items than they might have under the old layout where most comparable products were displayed side by side or very close to each other. The soup brands are now all over the place. The supermarket now looks more like a “souk,” or open-air marketplace, though forget about bargaining. Also forget about efficiently comparing product qualities and prices. Doing that in this market will require a prodigious memory and/or a lot of note taking and calculating. While all that is going on, other consumers will be scooping up products you deferred buying until you finished checking alternatives elsewhere in the store.

This concept of a not-so-super market is a fable, of course, but the idea behind it has become the reality for consumers of air travel. About four years ago the major airlines began charging separately for services that used to be included in the air fare, a process called “unbundling.”  While many travelers don’t like this approach, it permits each consumer to pay for the services she uses and these fees have enabled some financially strapped airlines to earn profits.

But, like the not-so-super market in our fable, the airlines have separated some of the goods in a way that prevents more than half of consumers – those who need or want to use an independent intermediary (traditional travel agent or online agency) – from effectively comparing the total price of air fares and the unbundled services they want. The availability and pricing for most unbundled services are available only on individual airline websites. The travel agencies, traditional and online, whose greatest value was the ability to enable comparative shopping regarding the character and price of all available options in each market are shut out from access to real-time, for-sale-now information. Such information is essential to help consumers complete their air travel purchases with the assurance that they have understood the options and made an optimal decision.

You may ask: how can this be? You may have thought that airlines were, as they often claim, vicious competitors and that their need for revenue would lead them to help intermediaries sell services that earned revenues for the airlines. You may even have thought that since more than half of air travelers buy their fares from intermediaries, the airlines would be sure that these unbundled services were available for sale through them in the more than 143 million consumer transactions they make in a year. Well, if you thought any of that, you would have been wrong. The airline industry is not your grandmother’s supermarket.

The airline marketplace is simply not working. For example, the airlines’ largest customers are corporations, many of whom have multi-million dollar travel budgets. It is critical to these companies to manage their travel expenses by understanding what is being spent, by whom and for what.  These large consumers of air travel typically turn to travel agencies called travel management companies (TMCs) to help them transact their travel purchases and manage their complex travel policies. These large corporate consumers of air travel have been demanding for years that the airlines make their unbundled services available for purchase and accounting through the TMCs they have chosen.  The airlines have refused these demands from their largest customers.

Other groups of customers have expressed their concerns about these practices through a petition (more than 50,000 signatures) against “hidden fees” to the U.S. Department of Transportation (DOT) and groups that traditionally represent consumer interests before the government have called on the airlines to distribute the services and fees through intermediaries. The airlines response: fuggedaboudit.

These refusals to honor the demands of consumers for access to information and purchasing are indicators of a failing market. This situation has persisted for several years. Among the consequences are increased consumer search times trying to find and acquire unbundled services, consumers paying more than they should for services whose prices are not influenced by competition and many consumers being unable to buy the services they want. These are the natural result of consumers being unable to engage in robust comparison shopping.

To be sure, one or two airlines have recently made purchasable access to their upgraded economy class seats available through some independent sources, but even those airlines stop short of committing to robust and complete disclosure of the dozens of separate services and associated fees through independent retail sources.

So what is the solution? There is one: the DOT is planning to publish in November 2012 a proposed regulation that may compel the airlines to disclose the full array of unbundled services and fees in ways that enable consumers to see the total price of air travel, and pay for it, at any retail source they choose. But two problems remain.

One is that we don’t know the precise scope of the proposed rules.  They may compel disclosure but not require the airlines to enable consumers to actually purchase the unbundled services through third party sellers.  If so, those consumers will have to commit to their ticket in one place, then go to the airline’s website for the unbundled services they want to buy now.  But even the short time between those events can result is missing the chance to book seats together.

The other problem is that the rulemaking process takes time and a final rule, even if perfectly crafted, likely will not be implemented until well into 2013.  Or later, if another delay in the rulemaking occurs (there have been two already)

Unless and until DOT acts to fix the situation, the not-so-super market for air travel is just going to get a lot more difficult for consumers.