REIN­VENT­ING AIR­FARES (AGAIN)

Main­line air­lines around the world are adopt­ing low-cost car­rier (LCC) fare struc­tures in or­der to tap into the grow­ing num­ber of price-sen­si­tive con­sumers. They’re also hop­ing that many of those travellers will pay slightly more.

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FOR YEARS, MAIN­LINE CAR­RI­ERS have been try­ing to find ef­fec­tive ways to adapt their tra­di­tional busi­ness mod­els to be able to com­pete with low-cost, low fare air­lines. Cram­ming more seats into cab­ins, slash­ing costs, new-gen­er­a­tion yield man­age­ment sys­tems, re­jig­ging fare struc­tures and even cre­at­ing the air­line-within-an-air­line con­cept. Air­ports in both Europe and North Amer­ica are lit­tered with failed ex­per­i­ments — BA’s Go, Delta’s Song, United’s Ted, Con­ti­nen­tal Lite, Air Canada’s Zip — where the par­ent com­pa­nies could never com­pletely sep­a­rate their off­spring op­er­a­tionally and fi­nan­cially. To­day, how­ever, the ma­jor car­ri­ers are learn­ing how to com­pete. Jet­star, Rouge and Scoot seem to be stand­ing on their own. Yet a more fun­da­men­tal change is un­der­way with main­line air­lines which is lev­el­ling the play­ing field with LCCs and gen­er­at­ing some new rev­enue.

COM­PET­ING FOR SCREEN AT­TEN­TION. On­line search en­gines have trans­formed the way con­sumers buy air travel. The bias that was in­her­ent in air­line-owned reser­va­tion sys­tems decades ago has been re­placed by more neu­tral search logic that ranks flight pref­er­ences con­trolled by the user. In or­der to at­tract price-sen­si­tive buy­ers who mostly pri­ori­tise the out­put by low­est fare, main­line car­rier flights need to ap­pear on the same screen as LCC flights. And that means main­line price points need to ap­pear to be com­pet­i­tive.

Pas­sen­gers fly­ing on most ma­jor air­lines have grudg­ingly ac­cepted that the all-in­clu­sive ticket price is a thing of the past. Charges for checked bags, seat as­sign­ment, pri­or­ity board­ing, food and bev­er­age, and live con­ver­sa­tions with reser­va­tions staff are now the norm.

Un­bundling the com­po­nents of the travel ex­pe­ri­ence and pric­ing them separately has al­lowed low-fare con­sumers to pay for what they truly value. Main­line car­ri­ers his­tor­i­cally matched LCC price points through in­ven­tory con­trol, but by strip­ping off the in­di­vid­ual el­e­ments, they are fi­nally able to show “bare bones” ticket prices.

As in most suc­cess­ful prod­uct mar­ket­ing, it’s all about the pack­ag­ing. Air­fares are no ex­cep­tion.

CON­SUMERS ARE MOVED TO TIERS. If you search an air­line’s web­site for a do­mes­tic or re­gional flight, there is a good chance the cor­re­spond­ing econ­omy class fares are grouped in three tiers. The once-un­bun­dled ticket price is, es­sen­tially, now re-bun­dled with each tier com­prised of pro­gres­sively more valu­able prod­uct com­po­nents. The clever mar­ket­ing names com­mu­ni­cate a tier’s con­tents. Ba­sic Econ­omy (Check ‘n Go, Starter Fare, Econ­omy Light, Value) – no frills, bare bones trans­porta­tion, hand bag­gage only – no ad­vanced seat reser­va­tion, no checked bag­gage, no re­funds, no changes – no up­grades, lim­ited or no fre­quent flyer points ac­crual Clas­sic Econ­omy (Light & Re­lax, Saver, Smart, Plus) – in­cludes most items ex­cluded in Ba­sic Econ­omy Flex­i­ble Econ­omy (Fast & Flex) – same as Clas­sic – re­funds (re­duced penalty), changes, pri­or­ity board­ing, food voucher, pre­mium seat­ing Each tier is in­tended to of­fer those travel el­e­ments that ap­peal to dif­fer­ent con­sumer types. On short-haul do­mes­tic flights un­der 90 min­utes, for ex­am­ple, are ad­vance seat reser­va­tions, ticket changes and re­funds es­sen­tial items for a price-sen­si­tive trav­eller?

In most cases, the mid-tier fare is priced the same or slightly be­low the ba­sic tier if all the ex­cluded ex­tra com­po­nents are pur­chased separately. For value-driven travellers, par­tic­u­larly those who check bag­gage, it’s of­ten more cost-ef­fec­tive to buy the midtier fare. Air­lines are hop­ing most con­sumers will fig­ure that out.

WILL­ING­NESS TO BUY UP. It’s not only leisure travellers who buy the low­est fare. Savvy busi­ness pas­sen­gers, es­pe­cially those who make fre­quent same-day short-haul re­turn trips, don’t need to pay more for checked bag­gage and in-flight ameni­ties. For them, the hand-bag only ba­sic price com­bined with any fre­quent

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