Judge blocks Sabre, gives American Airlines a break

by Tom Johansmeyer on

I guess it would make sense for American Airlines to turn to litigation. After all, this approach worked well against Orbitz.

Here’s the situation: the battle between airlines and online travel agencies escalated from the beginning of November – with American’s announcement that it would pull out of Orbitz – through the new year. The latest move was by global distribution system Sabre, which has made it more difficult for American’s fares to be found. Along the way, Expedia dropped American in a defensive move, and Delta pulled out of three smaller booking sites: CheapOair, OneTravel and BookIt.

The decision by Sabre to “demote” American Airlines had obvious business implications for the carrier, which is likely why it sought relief in the courts. As a result of a hearing held yesterday, Sabre has been blocked from limiting the visibility of American Airline flights, but there’s clearly more to come.

In addition to making it more difficult for customers to find American’s flights, Sabre also increased the fees it charges American, which would lead to an annual cost of $157 million for the airline.

Sabre maintains that it was within its contractual rights, according to an Associated Press report, while American believes the move was anti-competitive.

Five airline fees you haven’t thought about (but they have!)

by Tom Johansmeyer on

Over the past two years, the fees that airlines have figured out have been seemingly endless. Baggage and cancellations are just the tip of the iceberg. Now, passengers are stuck with a healthy dose of fee fatigue, but the good news is that there doesn’t seem to be anything left for which to charge – except maybe access to the flotation devices in the event of an emergency.

Well, don’t get too comfortable.

Despite having had a fantastic year in 2010, there are already grumblings in the airline industry about increasing fuel costs. This means, of course, that the additional expense will have to be passed along to us, the passengers, in some form. Even though we may not be able to think of (realistic) charges to levy, it seems as though the airlines have this under control, according to an article on MSN Money. Already, 19 different a la carte charges exist, and they are set to earn the airlines $22 billion worldwide for 2010.

So, the airlines want more of your money. How are they going to get it? Well, here are five ideas for them:1. Pay to talk to someone: do you need to talk to a ticket agent, or would you merely prefer to do so? Don’t worry; this perk option isn’t going away. You will have to pay for it, though, according to Jay Sorensen of IdeaWorks, a company involved in tracking consumer trends. The good news is that the only people in line will be shelling out cash for the privilege, so you won’t have to wait too long.

Alternative: if you want to talk to someone that badly, and are willing to pay for it, try online dating.

2. Pay to tote your own bags: are you ready to pay to avoid paying check-in fees? Spirit is already doing it, and most airlines in the United States have said they aren’t going to head in that direction. But, American Airlines, United Airlines and US Airways, according to MSN Money, “essentially have,” calling it “priority boarding or choice seating.” If you get a better seat you have a spot for your bags on a crowded flight. Otherwise, you’re stuck hoping for the best.

Alternative: make friends with a frequent flier.

3. Pay to take your bags overseas: we’re getting used to paying for checking the first bag on domestic flights, but we’ve been spared the humiliation when traveling internationally. That could change, though, especially since there’s money to be made.

Alternative: there’s a Paris in Illinois, too.

4. Pay to deal with your kids: so far, an infant on your lap has gotten a free ride, but this discomfort could cost you. George Hobica, of AirfareWatchdog, thinks this one could be on the list for 2011. “If the government doesn’t act to ban lap children,” he told MSN Money, “we might see the airlines make a move.”

Alternative: birth control.

5. Pay to be like everything else: back when I had platinum status on one airline and gold on another (in the same year), I came to appreciate the benefits – and this was even before the ancillary fee trend took hold. Now, status is worth even more, because it alleviates some of this fee pressure. The MSN Money article mentions that the hit could be targeted at non-elite loyalty program members, but I wouldn’t be shocked to see even the airlines’ best customers lose some of the perks someday.

Alternative: buy on price instead of loyalty.

[photo by compujeramy via Flickr]

Can travel booking sites endure the airline onslaught?

by Tom Johansmeyer on

American Airlines wanted out of Orbitz … and then it was bounced by Expedia (preemptively, it seems). Delta wanted out of CheapOair … and OneTravel … and BookIt. Nobody knows what’s next, but it appears that something is on the horizon, given the magnitude of change in the airline/online travel agency landscape over the past few weeks. I wrote a month ago that a “brand war” was brewing, a sentiment that has since been echoed by other media and research organizations.

So, as the battle intensifies, it’s natural to ask one simple question: should online travel agencies actually exist?

Specifically, a comment by Delta’s Glen Hauenstein on Tnooz caught my attention:

“We look at it very much like an Apple store versus Best Buy. You can buy components or Apple products at both. Your experience in an Apple store is obviously quite different than it is at a Best Buy store. That model is what we think about when we think about Delta.com.”

This remark, delivered by Hauenstein at a Delta investor event, is seductive for its simplicity. Ithas everything the airline needs to look cool and in control. It aligns itself with the most innovative retailer on the planet, contrasts itself with a passé business model and makes the strategy look viable. In pulling out of CheapOair, OneTravel and BookIt, Delta creates the appearance of exclusivity and style (at least acceding to Hauenstein).

This would not bode well for the online travel agency sector, as the Delta play would indicate that owning the customer itself is far superior to sharing the customer with an intermediary. And doubtless, this is true: having the customer create a relationship with your brand is always best. The problem, unfortunately, is that this approach isn’t viable. There will always be bargain-hunters, comparison shoppers and lovers of alternatives who are natural online travel agency customers.Now, let’s return to Hauenstein’s retailer analogy. It actually fits, though not as he intended, particularly because Delta is not a premium alternative in the manner of Apple relative to Best Buy. Its product is a commodity, just like the products offered by the vast majority of airlines. Rather, we’re looking at a single-brand retailer (e.g., The Gap) relative to a major discounter (e.g., Wal-Mart).

Let’s dig into this a little bit. There’s something about the online travel agency model we can learn from the retail sector.

With the National Retail Federation’s “Big Show” in New York right around the corner, Deloitte’s Global Powers of Retailing report is bound to hit the world soon, and it will show, I suspect, that Wal-Mart is once again the largest retailer in the world. Doubtless, Target, Tesco and Carrefour will be in the top 10 as well. You won’t find Apple, The Gap or J.Crew, though. And, this is a situation that hasn’t changed much in more than a decade.

The vast majority of customers in the retail space want choice. That’s why they go to Macy’s and malls and big-box retailers. Of course, the travel consumer’s behavior is quite different. Most still prefer to book on the airlines’ websites – 62 percent, according to travel industry research firm PhoCusWright. Nonetheless, that leaves a considerable chunk of the market available to online travel agencies, and it indicate that roughly a third of the travel-buying community wants easier access to choice than the airline websites afford.

Also, the market share number can be deceiving, as Motley Fool explains:

Last year industry researchers at PhoCusWright said the global distribution system used by Orbitz, Expedia, and Priceline accounted for two-thirds of all airline passenger revenue, or $81 billion, in 2008. Losing a good portion of that money to the airlines will crimp the OTAs business, which they see as a threat to their future, but in the escalating rhetoric and use of force by both sides, it may be that all parties end up pouring more resources into a conflict that neither one really wants to fight.

The airlines do have a considerable negotiating position. The industry just recorded record profits, and with all the additional fees introduced, there are new revenue streams which seem to carry disproportionate large profit margins. A recovering market reduces price sensitivity among travel buyers, which leads to less bargain-hunting, also an advantage for the airlines.

Yet, what the airlines need to understand is that these factors are not absolute. Bargain-hunting behavior will continue. Consumer demand for choice – and the ability to evaluate options – will not recede in favor of unconstrained brand loyalty. The airlines may be in control, but the grip is not one of iron.

It’s pretty clear that the situation will get uglier over the next few weeks. I’m reminded of an email I received from Douglas Quinby, Sr. Director, Research at PhoCusWright, “American may have jumped the gun a bit with Orbitz, but believe me – we ain’t see nothin’ yet!” But, I don’t think a heightened level of intensity will necessarily lead to the decimation of an industry. The online travel agencies are here to stay: they aren’t going anywhere. The dynamic between these sites and the airlines, though, appears to be changing, and we’re just witness to growing pains.

Airlines celebrate record profits with new fees

by Tom Johansmeyer on

If you were running a business that just pulled in record profits after two years of business hell, what would you do? Some companies would show their customers some appreciation. Others would find new lines of business or products in which to invest. The airlines, however, seem poised to jack up their fees.

Let’s face it: ancillary fees have been good to the airlines. Paying extra for food, checked bags and premium coach seating – not to mention cancellations – is the principal reason for the extra cash the industry pulled in last year. And having tasted success, the airlines want more.

According to a report in the Tampa Tribune, the prospect of increasing fuel costs is causing experts and analysts to forecast additional charges for passengers this year. Possibilities include a fee for paying with a credit card (a real gem since cash transactions are highly unlikely, especially online), using the web to make reservations and for talking to a human being to get a seat assignment. The first two are brutal, because passengers would be charged for behavior (a) encouraged by the airlines and (b) that lowers their operating costs.

George Hobica, founder of AirfareWatchdog.com, tells the Tampa Tribune, effectively, that it’s a defensive move, since “[a]irlines don’t want to go back in the red.”

It’s also consistent with the emerging strategy of finding new ways to charge customers without having to raise ticket prices.

According to Hobica, as many as 10 new fees could gain traction in 2011, some of which are in use already.

So, is it gouging or prudent business? That’s hard to say. Airlines are in the business of generating profits – they can’t be faulted for that. Customers have little negotiating power, so the whole line of desperate thinking that we can somehow prevail seems moot.

[photo by Lindsay_Silveira via Flickr]

Is American Airlines making a “reckless rodeo bet”?

by Tom Johansmeyer on

American Airlines’ decision to pull out of Orbitz has triggered a war in the travel industry, as airlines and online travel agencies vie for ownership of the customer. The latest step was Expedia’s decision to minimize the exposure of American Airline options in searches on its site, likely a play to reduce the risk of a move by American to pull out of Expedia, too.

According to a statement by the Business Travel Coalition, this could erode American Airlines‘ standing in the market further. In addition to losing visibility on a major booking site, the airline will lose the additional sales that come when a visitor to an online travel agency leaves the site to book directly with the airline.

Says Kevin Mitchell, chairman of the Business Travel Coalition, said, “American is making a reckless rodeo bet that it can rope its best customers like calves and then push and pull and kick them toward aa.com and Direct Connect.” He continued, “Online consumers may not even know American’s flights are missing. The ones who will gain the most here are American’s competitors United, Southwest and others. They should be thankful for this early Christmas present.”
Striking a somewhat alarmist tone, Mitchell noted that American Airlines Direct Connect “takes the consumer problem of hidden airline fees to a much darker and dangerous place for consumers.”

While this may be a bit extreme, there are clear implications of the shakeup, especially for bargain-shoppers and occasional leisure travelers.

The fact that Expedia appears to have come to the defense of its competitor, as Mitchell stated – “Expedia’s decision to support the consumer and its competitor Orbitz underscores the enormity of the economic damage American Airlines’ Direct Connect plans could have on consumers due to lessoned [sic] price transparency and impeded comparison shopping” – should be taken within the context of what could happen to Expedia’s business if it didn’t implement this defensive measure.

The real impact of this is pretty simple: customers loyal to the American Airlines brand will continue to buy from American Airlines. Those who are searching for the cheapest fares will balance their behavior between visiting online travel agencies and airline websites.

American Airlines may not have made a “reckless rodeo” bet, but is making a statement about the future of its business. The airline is betting on its own brand, and the online travel agency community is responding.

[photo by ReneS via Flickr]