A Closer Look: Ancillary Fees Back Story: Flipping The Model

In 2006, U.S. airlines and global distribution systems (GDSs) underwent their first “marketplace negotiation” in some 20 years after the GDS industry segment had been deregulated two years earlier. Airlines’ stated goal in this negotiation was cost reduction through reduced segment fees paid to GDSs. Six years later there is a second round of “negotiations” of sorts underway, but this time it’s not about costs; but rather, it’s about control of the customer and long-term revenue generation.

These goals are typical of most industries. What sets the airline industry apart, however, is a near total disregard for the customer as well as other stakeholders in the value chain and an implausible airline assertion that they alone will decide for all industry participants and their customers what the new rules of commerce will be for procuring commercial air transportation services.

For a few years now some airline CEOs have been articulating a vision that supply-chain participants and end customers should pay airlines for access to airline content. In other words, they have been pursuing a dream of turning airlines’ distribution and merchandising costs into line-item profit centers. This proposed new model would no doubt alter the interplay among customers, costs and competition in fundamental ways.

There are several reasons most U.S. airlines are stonewalling requests to provide ancillary fee data to distributors and their customers, including profits available from customer confusion over fees. However, the principle motive appears to be to create leverage over travel agencies, travel management companies, corporate travel departments and GDSs for a model change that would benefit airlines at the expense of all other stakeholders.

To this end, airlines repeat over and again that customers are “demanding” personalized offers that require airlines to “authenticate” with precision exactly “who’s asking.” Really? Isn’t this “personalization” just mere code for restricting access to all travel options available for a given itinerary and instead showing the customer only what an airline wants her to see based upon recent buying history and other information possessed or purchased by the airline?

Critical to this proposed model is that responses to travel agent queries for complete air travel options on behalf of a traveler would not be returned via a GDS based upon the Airline Tariff Publishing Company’s repository of fares and schedules. Rather, airlines themselves would return what they call “manufactured” travel options directly to the agent based upon what they know about “who’s asking.” Would all airline customers be comfortable with this, let alone demand it?

For brand-loyal airline customers, such a “manufactured” offer is available on many airlines’ websites, and that may be might be what these customers seek. But for others, including the some 95 percent of corporate travelers who seek comparative air travel choices and options through their travel management companies (TMCs) and corporate online booking tools, I think that more than a few would be suspicious of such “personalization.”

The U.S. Department of Transportation (DOT) needs to demand answers from airlines to some important questions about their new vision for air travel buying such as:

1. Does “who’s asking,” “personalization” and “authentication” represent true product customization for the customer, or only the opportunity for price discrimination and biasing based upon possibly inappropriate criteria? In other words, even if airlines forswore using such a model-change to charge ever-higher prices to frequent business travelers, in the absence of publicly available fares and schedules, how would such promises be policed?

2. Could business travelers, airlines’ best customers, – with less flexibility than leisure travelers – requiring en route changes face higher prices from airlines that know such travelers have little choice but to accept their “personalized” offers as lower-priced alternatives could be blocked from the view of the traveler’s TMC?

3. Would customers be able to opt-out of the “personalization” protocol and go to travel agencies, TMCs, meta-search sites or OTAs and compare all options available in a given marketplace, and without having to identify themselves?

4. How could airlines use this new price discrimination ability to competitively disadvantage or otherwise undermine travel agencies, TMCs and corporate travel programs and drive consumers to airline.com where comparison-shopping, corporate travel policies and duty-of-care programs are unavailable?

5. Would agencies, TMCs, corporate travel departments and Airlines Reporting Corporation-accredited Corporate Travel Departments (CTDs) have access to complete and accurate airfare information necessary to determine the best value for each business trip, and would they be able to continue to point to that competency as central to their respective value propositions? Would they be able to benchmark against market rates and credibly substantiate cost savings?

Since 2008, airlines have rejected the requests of their most valuable corporate customers for ancillary fee information that would enable pre-purchase visibility to the “all-in” price of air travel options. The financial harm to all airline customers from hidden airline fees multiplies every day, week and month that they are deprived of efficient comparison shopping and purchasing. DOT, which is the only state or federal agency with the authority and obligation to protect consumers of the air transportation industry, must act promptly and decisively to restore efficient comparison-shopping and buying.

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