April 28, 2014
The flap over how to display air fare offers in USA.
There is a proposed law in the USA called H.R.4156 more formally “Transparent Airfares Act of 2014” which amends the current law now on the books and passed in “2012 49 U.S. Code § 41712 – Unfair and deceptive practices and unfair methods of competition”. More commonly called the Shuster/De Fazio Law.
The original law can be found here: http://www.law.cornell.edu/uscode/text/49/41712 the wording of the new act can be found in the US Congressional record. here: http://thomas.loc.gov/cgi-bin/bdquery/z?d113:hr4156. Don’t worry too much I have pulled out the respective texts – see sidebar below.
Why the flap?
Last year three US airlines (Southwest, Spirit and Allegiant) ironically all categorized as low cost carriers, had a court fight with the US Dept of Transportation of the provisions of 49 U.S. Code § 41712. Read the Bloomberg article here: http://www.bloomberg.com/news/2013-04-01/airlines-rejected-by-top-court-on-price-advertising-rules.html
The US Airlines association now known as A4A http://www.Airlines.org also supported the case and has been prominent is driving new rules and/or regulation that would permit airline pricing to be more like conventional pricing. In the USA – the prices for general retail products, are presented as not tax inclusive. Airlines however must show all fares, fees and taxes into a total all in price. The purpose of the revision would presumably permit the airlines to display different forms of prices leading with a base price.
The folks sponsoring this bill are from the committee who regulates the airline industry. It seems to be a reasonable and relatively minor change. However there are many people who are against it. Here is a smattering of the rhetoric:
http://www.washingtonpost.com/lifestyle/travel/the-transparent-airfares-act-hiding-the-true-cost-of-your-flight/2014/04/24/3d1caab0-c9a6-11e3-a75e-463587891b57_story.html?wprss=rss_travel and here is the Opinion o the Gry http://www.nytimes.com/2014/04/23/opinion/making-airfares-less-transparent.html?_r=0
How is it done in other countries – the best example is the European Legislation. This is contained in several statutes but the clearest example is Regulation 1008/2008 http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2008:293:0003:0020:en:PDF I have copied in the relevant working into the sidebar.
In my view the big issue is that the airlines want to be treated like other product categories and to price with a base price of less than the total price to be paid by the individual. This is not sinister and a conscious effort to trick the consumer but it will likely lead to more confusion by the consumer. Diving a little bit into the arcane nature of airline pricing – we find that the lumping of fees and taxes is frequently done together. The complexity of fees and “near taxes” which are not really taxes but are called fees and taxes gives the impression that they are indeed a regulatory imposed charge is false. They are not taxes. Indeed some are displayed as Taxes and yet separately fees and taxes. For an allegedly de-regulated marketplace the sale of travel products is probably one of the most complex and heavily taxed regime’s in the world.
It will get worse.
The introduction of ancillary charges including seats and bags will add even more complexity to the task of the consumer to figure out how much he is going to pay for that trip. Should that be allowed? I believe that as long as there is a clear bottom line price laid out for the consumer for a viable product then the mechanism for pricing should be clear and simple. The fact that regulators love to tax the traveller – as its an easy collection market will make the consumer base subject to more and greater tax burden is inevitable.
Frankly at the end of the day – Governments should get out of the complexity and collect a single tax and reduce the tax burden of collection. Then a simple regulation set of 2-3 taxation charges would be met by the consumer with open arms.
SIDE BAR – The relevant text from the current law and the proposed change.
For the purpose of the story I have pulled out the text of the existing law and the relevant section on airfare price disclosure:
Section 1 – Existing law.
c) Disclosure Requirement for Sellers of Tickets for Flights.—
(1) In general.— It shall be an unfair or deceptive practice under subsection (a) for any ticket agent, air carrier, foreign air carrier, or other person offering to sell tickets for air transportation on a flight of an air carrier to fail to disclose, whether verbally in oral communication or in writing in written or electronic communication, prior to the purchase of a ticket—
(A) the name of the air carrier providing the air transportation; and
(B) if the flight has more than one flight segment, the name of each air carrier providing the air transportation for each such flight segment.
(2) Internet offers.— In the case of an offer to sell tickets described in paragraph (1) on an Internet Web site, disclosure of the information required by paragraph (1) shall be provided on the first display of the Web site following a search of a requested itinerary in a format that is easily visible to a viewer.
Section 2 New law
The new law’s entire text is:
a) Full Fare Advertising- Section 41712 of title 49, United States Code, is amended by adding at the end the following:
`(d) Full Fare Advertising-
`(1) IN GENERAL- It shall not be an unfair or deceptive practice under subsection (a) for a covered entity to state in an advertisement or solicitation for passenger air transportation the base airfare for the air transportation if the covered entity clearly and separately discloses–
`(A) the government-imposed taxes and fees associated with the air transportation; and
`(B) the total cost of the air transportation.
`(2) FORM OF DISCLOSURE-
`(A) IN GENERAL- For purposes of paragraph (1), the information described in paragraphs (1)(A) and (1)(B) shall be disclosed in the advertisement or solicitation in a manner that clearly presents the information to the consumer.
`(B) INTERNET ADVERTISEMENTS AND SOLICITATIONS- For purposes of paragraph (1), with respect to an advertisement or solicitation for passenger air transportation that appears on an Internet Web site, the information described in paragraphs (1)(A) and (1)(B) may be disclosed through a link or pop-up, as such terms may be defined by the Secretary, that displays the information in a manner that is easily accessible and viewable by the consumer.
`(3) DEFINITIONS- In this subsection, the following definitions apply:
`(A) BASE AIRFARE- The term `base airfare’ means the cost of passenger air transportation, excluding government-imposed taxes and fees.
`(B) COVERED ENTITY- The term `covered entity’ means an air carrier, including an indirect air carrier, foreign carrier, ticket agent, or other person offering to sell tickets for passenger air transportation or a tour or tour component that must be purchased with air transportation.’.
(b) Limitation on Statutory Construction- Nothing in the amendment made by subsection (a) may be construed to affect any obligation of a person that sells air transportation to disclose the total cost of the air transportation, including government-imposed taxes and fees, prior to purchase of the air transportation.
(c) Regulations- Not later than 120 days after the date of enactment of this Act, the Secretary shall issue final regulations to carry out the amendment made by subsection (a).
(d) Effective Date- This Act, and the amendments made by this Act, shall take effect on the earlier of–
(1) the effective date of regulations issued under subsection (c); and
(2) the date that is 180 days after the date of enactment of this Act.
How is it done in other countries – the best example is the European Legislation. This is contained in several statutes but the clearest example is Regulation 1008/2008 http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2008:293:0003:0020:en:PDF
EU regulation 1008/2008 Section 16 states:
Customers should be able to compare effectively the prices for air services of different airlines. Therefore the final price
to be paid by the customer for air services originating in the Community should at all times be indicated, inclusive of all
taxes, charges and fees. Community air carriers are also encouraged to indicate the final price for their air services from third countries to the Community.
April 13, 2014
if you are a startup airline – you face many challenges. The sheer enormity of the regulatory, commercial, legal, operations and technical challenges. Does a startup really have a chance to get established? Judging from the sessions over 2 days in Ireland at the CAPA Spring AIT – Airlines in Transition Conference, the answer has to be negative.
What we see today is the homogenization of the marketplace. Last year’s event saw the emergence of the financial metric ROCI – return on Capital Invested. This year, that was no longer new but assumed. For new entrant carriers there is a significant change from the growth of LCCs in the last 1990s and 2000s which has given way to profitable but “too big to fail” large airline groups. IAG’s Willie Walsh and the regulators both were speaking about market efficiency and preventing irrational competition into the marketplace. How great it was that the marketplace was now a rational and safe place for the market forces to work effectively. However I believe that this is not a good trend.
Good question – the chief reason is that the legacy carriers achieved 3 major changes over the past 10 years.
- Mergers and acquisitions have radically changed the landscape of the airline marketplace.
- FSC Airlines persuaded the regulators to allow them to engage in legal closed relationships that normally would not have been permitted under conventional anti-Trust legislation.
- The LCCs showed FSC/Legacy carriers how to make money through unbundling and merchandising
These changes have dramatically altered the landscape and airline competition has been replaced by a closed marketplace to all but the biggest carriers. The significant reduction in competition in both LCC and FSC sectors is hurting the consumer. Slower growth rates, higher prices are obviously linked.
The regulators who spoke at the conference and the larger carriers such as IAG were patting themselves on the back at how well the marketplace works. However there was little attention paid to the two critical areas of consumer competition and the economic impact of the reduction in competition. There should be strong concern that the airlines are being protected by the regulators and that protection should be removed.
In my view – the continuing anti-trust support for the various Joint Ventures such as A++, DL/AF and BA+AA does not pass the test of consumer value. It should be ended. However the opportunity for new carriers to enter the marketplace has barriers never before seen. A removal of the regulatory protection and the banning of the Joint Ventures will significantly increase competition across the Atlantic. Further loosening of the ownership rules (but not control) should permit the European and US carriers to compete against the Gulf and Asian airlines more fairly and directly benefit the consumer.
The end of competition is evidenced by the sheer size and reach of the European conglomerates. That IAG is highly profitable yet AF/KL and LH Group are struggling is an example not of a fair marketplace but a dissonance of outmoded and inflexible regulation and poor labour management.
This is a great industry. It has the ability to benefit the consumer significantly. The regulatory framework does need to be reformed. That reformation should be consumer focused not supply side focused.
Food for thought.
April 6, 2014
Examining Travel Trends is a fascinating exercise. Gleaning nuggets of wisdom is often fun to do. As I travel a far amount – I am not likely to be your typical traveller. However there are trends that support what one can intuitively feel.
For some time I have been watching the decline of the domestic market travellers. On face value this trend was driven in most part by the high cost of fuel. In general many believe that the high cost of both gasoline and aviation fuel have slowed growth of domestic travel (both leisure and business). However there are other trends which are fueling the decline in growth.
The following chart shows the disparity between domestic and international growth rates in accommodation 2002-2023. (From the Oxford Economics/Amadeus Travel Trends 2014. http://blogamadeus.com/wp-content/uploads/2014/04/AmadeusTravelTrends.pdf).
In my view there are multiple factors driving this trend, here are my take on these:
- Hassle factor – short haul traffic is not fun. In all regions of the world the ability to travel at all has created a barrier to entry that just makes short haul travel – well not nice.
- Technology reduces the need. Desktop communications such as Skype and Join.Me has dramatically reduced the need for direct face to face travel in total but particularly for short haul. Desktop small meetings have also reduced the need for these to take place. This may seem counter intuitive to the need for increased meetings (yes you know what I mean).
- Unmetered (free) mobile communication tools the emergence of such tools as WhatsApp, Wechat, Line etc etcmeans that the small meeting market has become itself mobile
- Yes men can actually multi-task. We have all learned the skill of multi-tasking.
- Consolidation and Concentration in the air transportation sectors. Domestic and International is now an oligopoly. This has resulted in far higher costs per travel unit
- Congestion and poor shorthaul traffic infrastructure and lack of efficient medium haul public transport. (See also #1)
- Cost per unit of each travel component. Hotel, Air, Ground, Meals etc etc
- Peer to Peer travel products such as AirBnb, Uber et al. While I personally find these services to be illegal or unreliable – the other factors make these attractive.
I think its important to recognize that when we are looking at the long view – be careful with short term data trends.
January 3, 2014
Conventional wisdom says that branding is really important. It drives higher value, promotes loyalty. etc etc.
Well in the USA that doesn’t seem to be the case. Travel is a chronic under-spender in the category of advertising. But worse how its spent shows that the US at least has totally wasted a significant amount of its ad spend by going after direct response. In airlines that probably means that branding on the planes is irrelevant.
Have a look at this chart. This is from eMarketer. Its scary in its direct numbers.
Let’s look at the context. Travel is 5% of the total US GDP. The US GDP in 2012 was $15,684.80 billion US dollars in 2012 http://www.tradingeconomics.com/united-states/gdp . Travel’s value was $855.4 billion http://www.ustravel.org/sites/default/files/page/2009/09/EconomicImpactTravelandTourism2013update.pdf. Travel as a category represented 8% of the total ad spend so as a category it punches above its weight.
This should help put to rest whether price matters. Of course it does and price advertising in Travel is the door opener. If you dont tell people you have a price deal that they can assess in the opening moments of their decision process – you WILL BE EXCLUDED from the sale.
Sadly this points to some bad habits by brands and a continued shoveling of cash at Google.
Think about that as you set up your ad plans for next week’s campaigns.
(Images taken from eMarketer email).
But go to the original chart and you see that in fact Travel has the highest disproportionate spend of any category of brand vs Direct Response.
December 28, 2013
2013 has seen some clear indications that we are reaching a level of maturity in many parts of the Travel Startup ecosystem.
For startups things are humming along nicely. The world of the sharing economy seems to have pushed new life into the moribund world of truly different and innovative. Many people are taking a run at Tours and Activities again. And of course inspiration and planning seem to have been on a lot of people’s minds. And what is my take on this state.
In my view 3 things defined 2012:
- The blockbuster acquisition of Kayak announced
- The settlement of the Sabre vs AA lawsuit
- The launch of NDC
For 2013 – there was not as much going on. We had no real blockbuster events. Yes there was still a fair old amount of money pouring into the world of startup and innovation. Not a lot of it smart. I was singularly unimpressed with the crop at PCW’s First Philip-less Innovation Summit. (I suspect I am not alone there).
Hopper finally launched and I am rather unimpressed. This could be so much better. I think much of the world has moved on. In my view – Social Sign-ins should be OPTIONAL not compulsory. This really annoys me?
I don’t want to give Hopper or ANYONE ELSE my friend list. It is not my right to share other people’s data. Nor should it be anyone else’s. I am also getting tired of the minimalist interface that already frustrates me. I think I am REALLY tired of seeing a one box entry with a pretty background.
Let’s get into the sharing economy – actually let’s not. AirBnB is an amazing phenomena it has unleashed a way for the consumer to search shop and buy a stay that is reasonable and affordable. It is also illegal in most cases and multiple instances in the same transaction. However that illegality is not stopping the consumer. I just hope someone asks me to right the Risk statement in their IPO document. Sometime in 2014 AirBnB will likely be the source of the most room nights booked by a single brand. I firmly believe that AirBnB must be held accountable for the actions of its efforts. So far few people are considering the impact of the macro economic change that AirBnB is bringing to both short term and long rental accommodation markets.
So my final note is on the consolidation of power across the board in the travel supply chain.
Cars and Airlines have now migrated into a scarce supply. I have watched as the supply of the traditional (aka legacy) airline product supply has slowly concentrated. And boy has it concentrated. In the USA we have gone from large number of players to just – 4 yes FOUR AIRLINES. And for car rental that has now come down to a much smaller number. Hertz, Avis, Enterprise. Pretty much that’s it.
There is now a new reality – the days of neutrality are dead. We are dealing with the Dealership model and we need to get used to it. The consumer has less choice than perhaps he has had to deal with in a very long time.
In conclusion – i believe that the “old” new economy is fading and we are facing a more stable and somewhat boring world. 2013 has been a maturing of what we saw as the brave new world. The year of transition from the hyper-euphoria to more mundane things belies the need to fix a large number of under the covers infrastructure changes. (More on that in my follow up article for 2014).
As a postscript for 2013 – perhaps as a tantalizing look at how we can imagine the future – check out these new UX possibilities here:
Thanks for reading and here’s to a great 2014. Lunar year 2013 was the year of the Snake. As one – I welcomed the year with a bit of trepidation as it marked a major milestone in my life. Now I have had the chance to reflect – it wasn’t too bad. I wish all the best for your loved ones. May you find the true path and of course may peace come to all of us!
November 18, 2013
Tomorrow I have a round of meetings then head to the hedonistic travel heaven also known as PhocusWright. To cleanse my mind of all the hoopla and to a large extent glorified Cow Poop that will be ushered in on the wings of so called Innovation – I decided to do something I had not done in a long time. Surf on the World Wide Web.
How else would I have learned about NaBloMoPo?
Truly something magnificent. People blogging for the sure heck of it.
I love story telling. To me it is the highest form of Human Art. It weaves all those elements that makes us human. So I truly love a good story. This month being National Blogger Posting Month is probably a bit of a con from folks like WordPress. However I did enjoy some of the stories people are telling and then retelling.
So get out there and tell a story. Even if there is no one around to hear it.