Defenestrating Thoughts from the Bivouac

Everyone is all abuzz about airfares. Not only are they going up, but suddenly we have additional fees for checked bags. And now some airlines are charging for things like sodas and snacks while on the flight.

The big airlines have consistently been backing themselves into a corner, by signing untenable contracts with unions, having an unnecessary diversity of equipment, and using the hub/spoke model in order to get subsidies and, in many cases, be granted a near monopoly from hub cities.

Add in rising fuel costs and the airlines can’t adjust. So they need to raise fares. This completely makes sense, if the price of one of your “raw materials” go up, sure, end-consumer prices will go up to compensate. There’s no mystery there.

What I don’t understand is adopting an a la carte pricing model while prices are going up. (A la carte pricing is when the customer purchases only individual items instead of a fixed group of offerings.) I’m not debating the merits of a la carte pricing, just the timing.

Of course, It’s very likely that if the luggage wasn’t charged extra, the basic fare would go up more to compensate. But that’s not the point. The consumer see prices going up and quality of product going down; so we have to pay more to get less.

Now if just prices went up and quality was the same, the consumer would “pay more for the same” and the consumer anger could be easily deflected to the rising oil prices.

And I don’t understand the reasoning behind charging for soda. The justification is the weight. Well, if I’m not going to get a drink on the plane, I’m going to bring my own with me. So the weight is the same. The only difference is instead of the airline paying wholesale for the soda, I pay retail in the airport. And the airline wasn’t giving me that soda for free, you can count on that being a piece of the total airline fare.

Maybe, the airline can now staff the place with fewer stewardesses? Unlikely, those are union employees. So where’s the savings? The airline at most dropped the wholesale cost of soda on the fare. Wow, 15 cents cheaper fare. Probably not worth the PR hit in the first place.

Consider one of the orthogonal cases: suppose that airline fares were steady (or dropping). An airline could introduce a la carte pricing on rarely used things like the 2nd bag of checked luggage. Then they could drop the price and get some more business.

Alternatively, the airline could do a refund based system. When you check in and don’t have any checked luggage, the customer gets a $25 voucher for his next flight.

Both of these approaches would give you a la carte pricing with good to neutral PR.

So why did just about everyone do a la carte pricing? Because one airline did it first and was able to raise its base fares a little less than everyone. So everyone scrambled so their base fares would be inline. Stupid first mover.

Of course, every first year business student’s favorite airline, Southwest, is still doing fine and expects to make a modest profit despite the economic climate. And guess what, they don’t charge for checked luggage. Way to be a rebel Southwest! :-)