Not too far in the past air fares used to be very simple.
Most full and many discounted prices were mutually agreed among airlines
through their trade body IATA and it was then up to the airline whether to
discount or not. Such discounting on
‘published’ fares was done on the basis of need, promised volume, destination
promotions etc. There were other lower cost fares for seamen, groups, the
ethnic market and other special cases. All seemed to function well until two key
changes happened, firstly ‘low cost’ airlines came on the scene and then
company procurement departments became influential in travel decision-making.
How did the old fares work? Well they were an ‘inclusive’
price for all the costs involved in the journey. From the cost of your agent
for handling and changing the booking, providing corporate information, providing
24 hours support etc. In fact nearly 90% of what an agent did was providing support
for the booking. Very often they even shared some of their fare income with corporate
employers. The vast majority of the fare price went to the airline and they
provided the operation, passenger service, choice of cabin, route licenses etc,
and profit of course.
From a traveller perspective the old type of fares was
unpopular as they seemed (and in many cases were) high. They were also being
wooed very effectively by new ‘no frills’ airlines such as EasyJet and Ryanair
with their rock bottom pricing and huge marketing budgets. You see these
airlines were focussed on consumers rather than corporations but their impact
was huge in the thinking of the corporate traveller and company budget holders.
This impact was made infinitely bigger by the bullish approach by such airlines
via the media. There is nothing some journalists love more than being given
ammunition to attack non responsive national airlines with.
Initially the no frills airlines saw corporate travel as
very much a secondary market. Their focus was squarely aimed at the short
distance individual traveller who didn’t mind ‘roughing it’ for very few hours
on a cramped aircraft if it meant they could cut their air fare in half. They
were even willing to fly into less popular airports and catch a bus if
necessary. These airlines often bragged about their low prices and lack of
concern about passengers, in fact Ryanair seemed to thrive on it. The erosion
of the corporate travel status quo became quite advanced without anyone
particularly noticing it until the point of no return had been passed.
The crunch for these ‘no frills’ airlines came when their
passenger volumes stopped growing and I suspect their shareholders started
asking questions. In their own way they had saturated their market to a point
that they needed to find another source for new travellers. After all they were
still ordering large numbers of new aircraft and their shareholders must have
been asking how they were going to fill them. The answer? Business travellers, who they began to recognise
were more likely saviours than a liability.
They set about trying to win the very business travellers
they originally scorned and soon found out that the basic service they provided
was not adequate. These travellers wanted firm booked specific seats, more baggage
allowance, easy check-in, improved peak hour timings to preferred airport
locations. In fact all the things the main big national airlines already
provided. Many no frills airlines now provide these ‘luxury’ services… at a
cost. They also needed to offer their flights using the main booking systems
that are tailored to this market and, guess what, charge a fee for using them.
As no frills airlines costs sneaked up they needed a way to
charge the traveller whilst seeming to remain ‘cheap’. They achieve this by
keeping their fares basic and cheap but offering add-ons through ‘ancillary’
charges. These charges soon mount up but currently remain reasonably well
hidden from the corporation itself who still see the basic fare and little
else. In the meantime the main national airlines realised that they too can use
the same business model. So yes, their fates went down radically but their ‘ancillary’
charges grew massively.
So there you have it. One side had a very low fare which
they needed to mark up, whilst the other side had high fares that they needed
to mark down. They both achieved their goals in the same way by stripping the
bookings down to its component parts and charging for all the basic services
that people need at probably a higher price than they cost. This is a very ‘closed
book’ and commoditised method of which is rife with dangers, for example we
have seen a huge decline in the cost of aviation fuel but no change in ticket
prices. Service levels have dropped with mainstream airlines as they have
offloaded costs to compete. No frills airlines did not really have any
noticeable service levels anyway but are now having to provide them.
So fares and service have gone down globally, but have they
really? Ask travel professionals that question and I doubt any of them will say
they are happy with the current status quo. I mean you didn’t seriously think
that the airlines were going to charge less for the same service did you? Maybe
in your dreams you might. Also check out the long distance no frills market and
you will find there isn’t one. The model only works over short distances. How
far across the world would you want to fly on a Ryanair service?
