Thursday, January 27, 2011

Better to never have something than see it taken away?

I wrote a few comments in my blog not that long ago about corporate entertaining. I tried to both entertain and inform but there was one particular argument I tried to put across. It was ‘never give someone something and then take it away’ i.e. once you invite someone somewhere regularly and then stop the reaction is worse than the initial benefit. This is exactly what is going on in travel at the moment but in a much broader sense.

Have you wondered why ‘low cost’ airlines like Ryanair manage to sell tickets much cheaper than say British Airways? Simple you might say, Ryanair is much more restrictive in timetable, booking conditions, departure airports etc. Plus they do not have the enormous cost infrastructure the big global giants have. Of course you would be right but it is far more than that, which brings me back to my entertaining analogy.

Nobody gets anything from a low cost carrier unless they pay for it. They never have and never will. What you get is a low cost and a menu of add on prices for everything from bags to card payment to seat reservations. That is the key reason for the low lead price and they absolutely depend on income from ancillary costs.

The big airlines are the complete opposite to this. Their prices are historically all inclusive but now they have to change rapidly to stem the flow of lost revenue to their new ‘low cost’ competition. So what do they do? They start looking at every distribution cost they incur and try to eradicate them. Things like free card usage, credit periods, use of agents and access to special fares. They will in fact ultimately end up pretty close to becoming low cost carriers themselves which is, to me, as worrying as it is welcome, in fact more so.

So the national airlines are starting to take away things they used to give away. Well actually they never gave them away. Instead they built the costs into those high prices they cannot compete with these days. As I implied in my heading, taking away something people are used to breeds discontent and intransigents. Pity the poor big airline, they are getting attacked for taking things away that their low cost competition never gave in the first place and get kudos for not doing so!

The travel world can be a cruel place sometimes. You only have to have a look at what is going on between all the supply chain intermediaries as the pain of this particular change is going on. Have a quick look at the rest of this blog if you want to see what I mean.

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