The airlines business is a complex one. The pity is that most airlines
reflect the complexity in their business onto their dealing with passengers.
Passengers like me hate it.
I am planning a trip to the East Coast (I live in the San Francisco Bay
Area). The trip is a 3 city trip over 4 days. I generally prefer to do my
own travel planning. When I was at Infosys, I would talk to our company travel
agent. Now, in a startup, I find it easier and cheaper to do my own
travel bookings on the internet.
So far, all my trips to New York have been on JetBlue. They have convenient flights and low prices. This time I
need to go to Boston and Chicago as well and so JetBlue won’t work. So
I go to Expedia.com and check out the flights. My conclusion after 45 minutes
of research and copious note-taking - if I want to minimize my travel cost, I
will have to travel on 3 different airlines and fly in and out of different New York airports.
For most airlines, pricing is a game of revenue maximization. Here are some
tricks of the trade:
1. If you book your travel early you get a cheaper fare. Everyone uses this
one, including Southwest Airlines.
2. Refundable tickets cost more than non-refundable. Again, very widely used.
3. Take a hub, dominate traffic in and out of it and charge the earth for it. New York to Boston round
trip from two different New York airports can be $200 or $600 based upon the competition on that sector.
4. Round-trip fare is heavily discounted versus point to point.
5. Saturday night stay-over reduces the fare quite a bit.
There are countless other tricks that are all designed to maximize revenue.
Optimization engines and pricing rules in the innards of airline pricing
systems are some of the most complex you’ll find in the business world.
As a passenger I hate this whole system. I hate it that it takes me 45
minutes to do my tickets. I hate it that even after that, I don’t know if I
made the right choices. I hate it that I can’t travel back on a different
airline that has more convenient flights without paying a hefty premium for it.
And I cannot develop a trusting relationship with an airline who charges my
$600 when an equally good (or equally bad, depends on your perspective) airline
is charging a $200 fare for the same itinerary.
So here’s my question to these airlines. Do their fancy price optimization
algorithms put any value on what I can only call torturing the customer? I’ll
bet they don’t because they have no way to measure it or put a value to it. The
reason simplicity in business is so rare is that there are no good ways to
measure the cost of complexity. And so your finance types in the company can’t
put it into their cost-benefit analysis spreadsheets.
Complexity costs. Customers like simple products - simple to use, simple to
understand. They like simple pricing models where the price is linked to the
value they receive. This is not just true about simple-minded consumers. Business
buyers like simplicity as well.
Southwest Airlines is a company that I truly admire. The genius of Southwest
Airlines is in how they have become the most important airlines in the US by
simplifying it for their passengers and for themselves. In the morass of
complexity that is the American airlines industry, Southwest Airlines is a
shining beacon of hope. Not only is their pricing dead simple, everything about
the airlines is that way. They fly only Boeing 737s. This simplifies, crew
scheduling, training, aircraft maintenance and spares. They have only one class
- coach class. There is no seat assignment. It’s first come first serve. And
their frequent flier program is a tribute to simplicity – 8 round trips and you
get a free roundtrip to anywhere they fly. You would need a full book to fully
document the frequent flier program of United Airlines.
No wonder Southwest Airlines has delighted customers and a growing business.
Its market cap at $12.64B is way above much larger airlines like American
Airlines and United. They understand the virtue of simplicity. They understand
that it not only makes for happier customers, it also makes operations run
cheaper and faster.
Now if they’d only fly to the airports I need them to fly to.
Tags:
Business 