Wednesday, 3 March 2010

The Executive Traveller Economist

Why we should worry about travel services and fees as we slowly emerge from the recession.
Travellers have to pay attention to what airlines are offering before they book their flights. Those were the days when airlines will move heaven and earth to ensure that you enjoy your flight with them. Once debts start straying into the economic growth of airlines, economic growth tends to slump and then airlines start finding ways to charge for almost anything.
There is something particularly compelling about charging for almost everything that services providers like hotels and airlines put at our disposal as soon as supply exceeds demand because of high debt and recession so much so that so that they likely consequences is shrewdness on the part of the traveller.
Competition is only indirectly relevant. The question is how responsive an airline or hotel’s customers are to price – this is to say their own price elasticity of demand. The thing is when elasticity if low, airlines can increase prices without losing many customers. Naturally, this affects the price they charge and one explanation for elastic demand and low prices is that customers could easily shift to another airline.
Is it any wonder therefore that American Airlines has decided to charge fees for blankets and pillows? According to IAPA, the airline passengers association, American Airlines will begin charging for pillows and blankets in economy class – US$8 to be exact. It appears that the airline business has gone fees crazy. You never know what next they will be charging fees for. American isn't the first to charge for creature comforts such as blankets and pillows, and it won't be the last. The airline will continue to offer them for free in first and business class, and on long international flights in all classes. In the U.S., JetBlue, US Airways and now American charge for pillows and blankets. As with their policy of not charging for the first two checked bags, Southwest Airlines has taken the opposite approach. They've gotten rid of all pillows and blankets. The airline says it's not to cut costs, but for health reasons – I suppose that is a clever way of explaining the economics.
Perhaps it is about time we carried our own pillows and dressed appropriately. Cabin air temperatures can vary between 18ºC - 29ºC (65ºF and 85ºF) and the low end of that range can leave some passengers feeling too cold for comfort.
American Airlines is also keeping it simple by only accepting credit and debit cards on board for payment of items like duty free and alcoholic beverages. American Airlines flight attendants carry onboard secure handheld devices to ensure your payments with credit and debit cards are recorded safely. A receipt for any in-flight purchases will be available on request. Most major credit and debit cards are accepted. American Eagle and American Connection flights will however, continue to accept cash only for payment.

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