A few days ago, I questioned the insanity of airline pricing. I've been doing some research on the subject, and it still seems today's model is a poor one for the long-term viability of the industry. A big part of the problem is the "disruptive pricing" phenomenon precipitated, in part, by a lot of the new entries into the air travel market (JetBlue, Frontier, etc.).
These companies have the benefit of smaller fleets and smaller footprints, which means they need much less infrastructure and far fewer people to support their operations. They are also "buying market share" by offering incredibly cheap seats. Additionally, these airlines don't have nearly the cost commitment for pensions and other retiree benefits that their more established peers must manage. (And fuel costs just make things worse.)
My gut tells me this is not sustainable (unless we want to accept serial bankruptcies and a perpetual stream of startup airlines as the new reality).
It's bad business to run your suppliers out of business
In my time as an IT buyer, I always felt it was my duty to negotiate a reasonable discount, but I didn't believe in forcing my suppliers into a position where they couldn't sustain and improve their own business. After all, I want my chosen suppliers to remain viable and thrive, since the switching process is painful and costly for all involved.
So how do we resolve this in the air travel industry? I don't have all the answers, but my preliminary research tells me it will likely mean us getting "real" about the price we pay for air travel. Don't get me wrong - it's not that I want to pay more for my tickets (when my family travels, that means paying for 5 tickets).
However, if we don't adequately compensate airlines for the benefits they provide in a way that allows them to run reliable infrastructure, we all lose. I, for one, don't want to lose the benefit of air travel.
Some ideas I've seen that may help:
- FedEx has been using a "fuel surcharge model" to insulate themselves from fluctuating fuel costs
- The airline industry needs to get in synch on how pricing is handled (of course, the danger is "price fixing")
- There needs to be some consistent (and sane) method to allow people who plan ahead to get better prices than last minute purchasers - this fare sale fire sale approach seems to be driving the wrong behavior
What about you - any insight to share on this topic? Am I missing something here?