One of the news that prevails in the media these days is the rise in oil price. I have lived in the U.S. for more than eleven years now, during which I have seen the gas price rising from just above $1 a gallon to currently about $4. One of the industries hardest hit by this increase is the airline industry, an industry known for its low profitability, or lack thereof. To remedy the situation, the airlines have come up with a new pricing strategy. Instead of bundling all components of a trip into a single price, U.S. airlines have begun to adopt the “pay-for-what-you-use” business model.
First up for charge is the headphone each passenger has to pay for if they want to enjoy the so-called in-flight entertainment but have not brought their own. Second is food, and they have now charged for the previously free box meal of sandwiches, potato chips, and a cookie. The two most recent ones are, introduced last month by American Airlines, for checked luggage and, just announced last week by U.S. Airways, for non-alcoholic beverages, including bottled water.
True, the “pay-for-what-you-use” model seems economically efficient. Technically, passengers won’t get charged for what they don’t consume, which should make for cheaper ticket prices relative to when food and drinks are included. Airlines will be compensated for something that before they had to provide for virtually all passengers. Moreover, after a while, the airlines would learn how many headsets, carbonated drinks, and so forth have to be brought on board, the knowledge of which could save them some costs. The nickel-and-dime extra charges probably will not drive away many potential fliers (although, short of major overhauling of the industry, the discussion of which I will reserve for another piece, I don’t think the airlines can be saved).
How do I personally feel about these charges? The headset and the food charges have never bothered me too much. The former is because I can always occupy myself with a book, an MP3 player, a laptop (for both work and play) and, for better or worse, a nap. The latter because airlines have never been known for their culinary prowess and I can make do by starving myself for a more appetizing meal at the destination. Baggage and beverage charges trouble me somewhat.
What passengers can be expected to travel without checked luggage? Travelers going on a long trip without their possessions shipped or stored at the destination will be obliged to pay. The already fierce competition for scarce space to store their carry-on bags will become fiercer. Soon enough, more stringent regulations on carry-on bags, possibly including a pricing system to allocate in-flight space, will be imposed.
Or passengers, who would have been on a short flight, might choose to drive instead. Say, I want to travel from Los Angeles to San Francisco. Driving would take me about six hours. Going to the airport, checking-in, going through the security checkpoint, waiting, and flight time could altogether take about the same amount of time, and while driving, I can eat whatever I want, whenever I want, and bring however much stuff I want as long as I can fit them in the trunk. Obvious disadvantages of driving are inconvenience, exhaustion, risk for traffic accident, and the opportunity cost of time that I could have spent while at the airport or on board.
And, what will emerge as the airlines start charging for beverages? With the restriction on the amount and the type of liquid each passenger can carry through the security checkpoint and on board, they might be creating an oligopoly in the beverage market for air travelers. Passengers can now either buy their drinks from food vendors at the airport, who already charge premiums for their products, or from flight attendants. (Of course, U.S. Airways says flight attendants will serve at their discretion beverages to passengers who suffer dehydration or other medical issues, but how distraught do I have to be to get free water?)
American Airlines’ new ad campaign proclaims that they know why we fly. I am not sure the airlines do.
First up for charge is the headphone each passenger has to pay for if they want to enjoy the so-called in-flight entertainment but have not brought their own. Second is food, and they have now charged for the previously free box meal of sandwiches, potato chips, and a cookie. The two most recent ones are, introduced last month by American Airlines, for checked luggage and, just announced last week by U.S. Airways, for non-alcoholic beverages, including bottled water.
True, the “pay-for-what-you-use” model seems economically efficient. Technically, passengers won’t get charged for what they don’t consume, which should make for cheaper ticket prices relative to when food and drinks are included. Airlines will be compensated for something that before they had to provide for virtually all passengers. Moreover, after a while, the airlines would learn how many headsets, carbonated drinks, and so forth have to be brought on board, the knowledge of which could save them some costs. The nickel-and-dime extra charges probably will not drive away many potential fliers (although, short of major overhauling of the industry, the discussion of which I will reserve for another piece, I don’t think the airlines can be saved).
How do I personally feel about these charges? The headset and the food charges have never bothered me too much. The former is because I can always occupy myself with a book, an MP3 player, a laptop (for both work and play) and, for better or worse, a nap. The latter because airlines have never been known for their culinary prowess and I can make do by starving myself for a more appetizing meal at the destination. Baggage and beverage charges trouble me somewhat.
What passengers can be expected to travel without checked luggage? Travelers going on a long trip without their possessions shipped or stored at the destination will be obliged to pay. The already fierce competition for scarce space to store their carry-on bags will become fiercer. Soon enough, more stringent regulations on carry-on bags, possibly including a pricing system to allocate in-flight space, will be imposed.
Or passengers, who would have been on a short flight, might choose to drive instead. Say, I want to travel from Los Angeles to San Francisco. Driving would take me about six hours. Going to the airport, checking-in, going through the security checkpoint, waiting, and flight time could altogether take about the same amount of time, and while driving, I can eat whatever I want, whenever I want, and bring however much stuff I want as long as I can fit them in the trunk. Obvious disadvantages of driving are inconvenience, exhaustion, risk for traffic accident, and the opportunity cost of time that I could have spent while at the airport or on board.
And, what will emerge as the airlines start charging for beverages? With the restriction on the amount and the type of liquid each passenger can carry through the security checkpoint and on board, they might be creating an oligopoly in the beverage market for air travelers. Passengers can now either buy their drinks from food vendors at the airport, who already charge premiums for their products, or from flight attendants. (Of course, U.S. Airways says flight attendants will serve at their discretion beverages to passengers who suffer dehydration or other medical issues, but how distraught do I have to be to get free water?)
American Airlines’ new ad campaign proclaims that they know why we fly. I am not sure the airlines do.
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