price
1061 days ago
 

Can we de-commoditize air travel once and for all?

Why is air travel such a commodity? After all, it’s often one of the most durable memories of a trip.

It’s not uncommon to hear a friend tell you about their awful flight experience before finishing with: “…and, oh yeah, Aruba was great!”

It is the rare product that is such a defining and memorable experience for so many people, yet purchased almost entirely based on price.

We ourselves are to blame for the state of air travel because of this purchasing behavior (See an earlier article I wrote on this: How we buy plane tickets and why it’s ruining air travel). We refuse to reward airlines by paying more for things like good service, nicer planes, quieter terminals, or shorter lines.

The traveling public is notorious for ignoring all those things when making their purchasing decision, but then feeling indignant and wronged when the service inevitably fails to meet expectations.

Of course there are good reasons of this phenomenon.

1. Air travel is a perishable product

It’s getting from Point A to Point B, over as soon as we leave the airport.

No matter how much we complain, it’s still hard to shell out an additional $50 or $100 for something that’s temporary.

2. There is major inconsistency of service

There are just too many variables: Weather, load factors, airports, code-shares, regional carriers, plane type, mechanical issues, employee culture, number of elites, number of babies, etc.

Even airlines that pride themselves on a uniform product (e.g. JetBlue, Virgin America, and Southwest in the US, Ryanair and EasyJet in Europe) still cannot prevent massively divergent experiences day to day.

A great flight on Spirit is still better than an awful flight on United, and it’s impossible to know which you’re going to get.

3. Purchasing experience is disassociated with the travel experience

It is this last one that is most ripe for fixing in a meaningful way and, perhaps once and for all, taking a stab at de-commoditizing air travel.

How? By using direct distribution to differentiate the product during the search process.

Thinking ahead

Imagine how different our industry would be if we purchased all airfares walk-up? If you weren’t feeling well one day, you might opt for an upgrade.

If you were running late, you’d happily pay for priority security. If you had two bags, it might change how you feel about baggage fees or overhead bin storage.

But none of that matters since we purchase tickets weeks, if not months, in advance.

Meaningful differentiation is lost since no matter how pretty-looking different airline websites are (if we go to different airline websites at all!), it is impossible to really appreciate any product differences months before, from the comfort of our homes or offices (or anywhere on our smartphones), as opposed to the airport where the travel is imminent.

Direct Connect offers some hope by differentiating the shopping experience and tying more tangible product enhancements to the purchasing decision.

By being able to connect directly with consumers at OTAs or metasearch engines via an API (or directly via the carrier web-site), airlines can in theory provide a customized experience.

They can change pricing, amenities, and features depending on who you are and what kind of trip you’re looking for.

While price is still a primary concern, it might allow airlines to throw in other “value” items that shift the decision away from pure price to a value trade-off. The more consumers actively make those choices, the more they can link the purchasing experience to the flying experience.

One example of this happening today without airline participation is InsideTrip, a metasearch site which quantifies the “quality” of a flight based on 12 criteria. Unfortunately, OTAs have not made any moves to incorporate this sort of data.

To date, the only significant advance in the space is trying to incorporate bag fees into the search, but that is no different than showing taxes – it’s part of the rush to the bottom on cost.

Even Hipmunk’s Agony measure (which I love), is mostly a translation of layovers and travel-time. A great feature to help quickly sort through flight options, but hardly a meaningful step towards de-commoditizing airfare (the new wifi indicator is perhaps an even more important feature to this end).

In all fairness, Hipmunk and others don’t have much to work with and an apparent lack of major traction has cast doubt on the value of adding such features in flight search.

In order to make this work, airlines themselves have to provide real differentiation, and direct distribution could be the enabling technology.

At the CASMA (Computerized Airlines Sales & Marketing Association) conference, Scott Gillespie gave a talk (here) about the promise of direct distribution in de-commoditizing air and how the industry needs to do a better job of explaining the value proposition.

I agree, and would add airlines need to start actually providing the technology, not just talking about it. As we’ve seen with ancillary products offered only so far on airline websites, direct distribution will first and foremost allow airlines to play with revenue generation.

This alone will not alone help de-commoditize the industry, it will at best make the decision process more confusing for consumers therefore obscuring the true cost. After all, airlines are improving the bottom line by adding new revenue sources, not by improving the product offering enough to boost loyalty and yield on the seat.

That only further reinforces the notion that you should only choose based on price, it simply increases the number of things to be evaluated. Perhaps a step in the right direction, these features still do not change the underlying purchasing behavior.

In the end, we rely on the airlines to create meaningfully differentiated product offerings AND offer them in such a way that it might actually influence our purchasing decision.

The former is very hard, but most airlines are working at this and the steady pace of innovation here provides some hope. The latter? That’s where direct distribution comes in.

Until then, even the best OTAs and metasearch engines are just putting on a show, grasping at straws to make other things matter aside from price.

The good news, at least, is that incentives here are aligned. After all, there’s no better way to de-commoditize a metasearch site or OTA than by trying to show differentiation in the product it’s selling.

The bad news, of course, is that direct distribution also comes with a business model shift that OTAs and GDS are resisting.

Sooner or later we’ll see this innovation, just not nearly fast enough for us travelers or the airlines who need a way out of the downward spiral on price and cost.

 
 
Evan Konwiser

About the Writer :: Evan Konwiser

Evan Konwiser is a contributing Node to Tnooz and was co-founder of FlightCaster, which was acquired by Next Jump in December 2010.

Currently, he works with travel start-ups and consults on new technology and trends in the travel industry. He started FlightCaster in 2009 to provide better tools for travelers using advanced technology.

After the acquisition, he managed Next Jump's travel distribution business, which includes employee discount programs for Fortune 500 companies.

Prior to FlightCaster, Evan was a consultant at Bain & Company and he also spent time at Kayak. He's an industry blogger and speaker on both consumer and corporate travel topics, a recipient of PhoCusWright's first ever Young Leadership Award and a member of the critics circle for the Travel Innovation Summit.

 

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  1. Wandering Aramean

    Yes, the Direct model makes it easier for the airlines to sell more services to the customers. And, yes, it would be great if that data was readily accessible in an indexed and correlated manner for passengers to be able to compare prices not only of base fares but also of other services that they might use. But the airlines have a vested interest in NOT making that data publicly available because it cuts into their margins on those add-ons.

    At the same time, the Direct model does NOT solve the “commodity” problem because the transportation offered is still a commodity. At the end of the day the seats are very, very similar. So is the service. Yes, some airlines are better than others, but not consistently enough often enough to suggest that there is a reasonable metric that can be applied to such nor an objective way to market it. So airlines compete on price. It is what they do.

    Suggesting that a switch to the Direct model is going to change the services offered to passengers and somehow differentiate the service from the base commodity that it is seems quite a stretch to me. And so long as the Direct model impairs the ability of customers to easily compare prices across multiple carriers it is bad for passengers, not good for them.

    More thoughts on the topic here: http://boardingarea.com/blogs/thewanderingaramean/2011/10/is-air-travel-a-commodity-or-not/.

     
  2. Jonathan Meiri

    I tend to agree with Larry, there is a lot of information our there that can help us differentiate between products. I would add one comment that the value we place on each item is personal. For example the quality of the lounge mean less to me because I try to limit my time at the airport before a flight. The availability of wifi or the quality of the entertainment system would score high.

    What we need is have a way to pull all that together and factor it in to the cost of the ticket. Cheapest ticket, is not always the best value. My team is working to solve that problem, and I hope we’ll have some news to share in the near future :)

    Jonathan
    @getsuperfly

     
  3. Larry Smith

    @Evan Konwiser said: “We refuse to reward airlines by paying more for things like good service, nicer planes, quieter terminals, or shorter lines.”

    Explain how,as a consumer, I’m supposed to buy the product and reward the provider in advance or in the moment:
    - “good service” — shouldn’t I have an advance expectation for good service?
    - nicer place — where is it that I can see when that 737 last had a maintenance or coach upgrade?
    - quieter terminals — the 10% of airports with dedicated terminals, which the airlines don’t own to begin with.
    - shorter lines — technically possible when a 200 passenger plane is full and everyone is queued?

    The direct connect vs.channel partners is not the real issue. The break point is the fact that brand differentiation benefits do not appear in the purchase process funnel. Every process dead-ends at the transaction page featuring the “travel troika” of time, place, and price. Not once, not anywhere when you are ready to buy are you given a material, non-troika choice.

    Semantics and the semantic web will permit the airlines (and others) to deliver real-time benefits from their “deep web” databases to claim:
    - the planned aircraft and flight crew are rated 4.5/5
    - our algorithm using time, weather, and itinerary suggest a 92% on time performance
    - prepay for onboard wifi and we’ll give you a free gift

    This is clearly one of the big issues for the industry. It’s a commodity because it’s not differentiated.

    Best,
    Larry @thematix.com

     
  4. bestexcursion

    For me it makes no difference how to fly to holidays :) )

     
  5. Sceptical corporate traveller

    You omit one of the powerful commoditising influences – corporate travel policy. Many of the largest corporations with massive travel spending are increasingly enforcing policies that are almost totally price based – even enforcing connecting routes in lieu of direct for savings of a few tens of €/$/£ and banning business class even on longer flights.

    Personally I would willingly pay more for the one thing that matters most – seating space – IF (big if!) the cost were proportionate to the additional space, rather than a massive hike in cost. BUT – and it’s a big but, the moment such a distinction were clearly offered the corporate travel tools would force it out of the equation on the simple ground of COST, even if that were only a few 10s of dollars. So, back to commodity.

    In my private life – would I pay the extra??? I might, if it were reasonable – but it’s not! When airline sites offer me upgrade opportunities (yes BA, I do mean you!) they annoy me in the booking process by adding extra information, steps and time for an offer that is laughably different in cost from what I started booking. Plus 10-15% – I might bite – but DOUBLE – do BA’s marketing people have no common sense at all?

     
  6. Daniele Beccari

    Evan – agree with analysis except one statement:

    “We refuse to reward airlines by paying more for things like good service, nicer planes, quieter terminals, or shorter lines.”

    Fact is airlines ARE quite differentiated, whether it’s new terminals, better lounges, choice of hot meals, cheap fares, loyalty program perks or simply flying slots. Tons of people willingly pay for service. Ancillary fees account for billions of $, and someone has paid for that.

    The problem is that it’s complex AND costly for intermediaries like OTA/metas to develop systems that compare other things than just price and enable simple ancillary sales. Especially if they don’t get commissions from doing that.

    It’s much easier to plug once into a GDS, sort by price or a few simple parameters, sell flights at near 0 margin and make something out of hotel/car/activities cross-sell.

    So in my opinion it’s just a return on investment problem, as usual.

     
    • Evan

      I disagree Daniele — we pay for those things because we HAVE to, not because it differentiates an airline. The big revenue sources are baggage fees and change fees — both have nothing to do with differentiating an airline (at best, if we’re REALLY savvy, we compare baggage fees as part of the price before making a purchase).

      Even WifI and IFE are hardly differentiating factors. People may pay for them while on board, but few airlines/OTAs/metas are making them points of decision during the purchase (with some exceptions, as I’ve tried to note).

      I do agree with you re the complex and costly systems. And that is exactly my point: Direct distribution may offer a shortcut to make that easier, and it behooves airlines to push these additional features of it NOW as part of the value proposition. Perhaps there is rev share in ancillaries that can make up for lower distribution fees to OTAs?

       
      • Daniele Beccari

        Under this perspective, we even just book flights in the first place because we HAVE to (to attend a business meeting, to go on vacation, to meet friends etc). In this case, any effort beyond reducing cost and limiting capacity would be futile.

        I don’t think so. But so far, airline marketers are not smart about it, as the comment below suggests – an upgrade for double the price is not common sense.

         
 
 

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