Ed Perkins on Travel
9:30 AM EDT, September 30, 2013
"Brand" is the latest buzzword in airline pricing. Pioneered by American Airlines, the idea gets high praise from some of the airline marketing mavens. And if it seems to work for American, you can bet other lines will quickly copy: After all, "Me, too" is the most important principle in airline long-range planning. Here's how it works:
-- The airline establishes three or more fare "brands" encompassing different bundles of base fares with ancillary services such as baggage check, advance seat assignment, early boarding, meals, in-flight entertainment and Wi-Fi, and possibly access to the extra-legroom, semi-premium economy seats.
-- Like typical cable or satellite TV offerings, the lowest fare "brand" is the rock-bottom price: If you want any additional features, you may either have to pay for them separately or, more likely, move up to a higher-level brand.
-- Fare levels in all brands are capacity controlled, with the lowest fares selling out first, then moving to successively higher fares. But regardless of the fare level, all brands will remain available for sale until flight departure.
American's system uses three brands in economy: "Choice," the lowest; "Choice Essential," that adds one checked bag, no change fee, and early boarding; and " Choice Plus," which adds no-charge, same-day flight change, same-day standby, a premium beverage, and a 50 percent frequent flyer bonus. Pricing is designed to make moving up-brand attractive: For a nonstop round-trip New York to San Francisco itinerary in May, the bare bones price is $396, the midmarket price is $464, and the top price is $484.
Clearly, American could add many more levels. Levels including seats in the "Main Cabin Extra" semi-premium section, one-day entry to the Admirals Club lounge, and Wi-Fi would seem likely candidates.
Although this sort of bundling might sound familiar, it's more comprehensive than the similar "fare families" approach that several other airlines use. As with branded fares, various amenities are linked to fare levels. But with the families, as the lowest fares sell out, consumers no longer have the option to stick with a bare-bones or a lower-level bundle. The two big Canadian lines -- Air Canada and WestJet -- pioneered this system.
Most other lines stick with strict "a la carte" pricing for ancillaries. That way, you add what you want and forget what you don't want. But the only way to get some of the more attractive alternatives is to buy a higher fare.
The airlines and their marketing consultants see three big benefits to branded fares:
-- The brand price levels are set up to make moving to higher levels look like good value to consumers.
-- They're revenue-positive, because the incremental costs of many of the ancillaries are close to zero and almost always well below the price premium.
-- They draw travelers to booking through the airlines' own websites -- both a big revenue plus and a marketing advantage.
And it's that last point that has some big players in the industry in turmoil. Right now, the big online travel agencies (OTA)/price-comparison websites and the global distribution systems that feed them pricing data are not set up to handle fare brands. When I checked my sample American Airlines itinerary on Expedia, for example, all I found was the bare-bones fare level plus a pull-down menu for baggage charges. Parenthetically, I found lower nonstop fares on JetBlue and Virgin America, options American would prefer I not see and would not see on American's website.
Corporate travel managers are also worried about losing complete fare transparency. Branded fare might also be a benefit, however, in that they could avoid endless hassles about covering expenses for ancillaries if they specified the brand employees should use.
If, as I suspect, other airlines will jump on the brand bandwagon, I see a big struggle coming up between airlines and third-party OTA and fare comparison sites. Consumers, too, are in danger of losing the ability to compare fares from many different airlines on a side-by-side basis. I think the OTA will rise to the occasion, but they face a big challenge.
(Send e-mail to Ed Perkins at eperkins(at)mind.net. Perkins' new book for small business and independent professionals, "Business Travel When It's Your Money," is now available through http://www.mybusinesstravel.com or http://www.amazon.com)
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