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Thursday
Sep182008

Dynamic, Dynamic, Dynamic; Bless Air Canada; and the Education of Stakeholders

Like Holly Hegeman at Planebuzz.com, I am having my own computer week from hell and as a result I am cranky. In my crankiness, I am actually thinking about the shot-gun wedding of airline labor and airline consumers, destined to fail, first initiated by the Business Travel Coalition.

This post is kinda about international alliances. Moreover, it is kinda about international alliances not being on the same page. I understand that without Anti-Trust Immunity (ATI), carriers are limited in their discussions with one another. But I find that Air Canada’s decision to rescind second bag charges at a time when United announced it would double its fee for a second bag to be a black eye for the STAR Alliance. North America is one thing. Tomorrow is not about North America.

What good is my STAR Alliance Gold Card if I do not have a clue? And I pay attention. Let’s be honest and frank here, Air Canada, under the leadership of Montie Brewer, has done great things with the internet. They have taught us about simplicity and transparency while teaching the air travel consumer about the concept of “value-added” services when making decisions to purchase an Air Canada product. These include preferred departure times, seats, meals etc.

Further, let’s not let it be lost that Air Canada’s approach, begun long before US carrier’s decisions about ancillary fees, gives them a leg up on the consumer education aspect. So, rather than charge for a second bag, Air Canada will roll its previously stated fuel surcharge associated with buying a seat on a particular sector into the base fare.

Ben Smith, Air Canada’s Executive Vice President and Chief Commercial Officer said: "These initiatives are made possible by the recent relief from all-time high oil prices and even though fares will remain dynamic”. Dynamic is the key word in this phrase. It simply means volatility. We can expect volatility going forward. The fact that a barrel of oil has dropped $55 per barrel in a little over 60 days after rising nearly $60 per barrel in a little over 200 days we should not immediately jump to the conclusion that the global industry is out of the woods. For statistical types: what is the standard deviation?

Air Canada does have it right. If dynamic cost increases are plaguing the industry, then let fares be dynamic. Addressing, and implementing, these processes goes a step further to educate the consumer and labor on the argument that the industry simply cannot sustain a fixed cost, fixed fare, environment that does not produce a profit for those providing the metal. Moreover, dynamic pricing is about addressing the boom and bust cycle that has plagued this industry for nearly three decades. It is about the education of stakeholders.

US carriers are using volatility to create rigidity through ancillary charges. And that is what defines legacy in many ways. Dynamic should be the word of the day. Dynamic is the action that needs to describe the immediate future of this industry as well as the outcome of the next labor negotiations – any airline’s largest controllable expense. Sadly, no US carrier is articulating this point.

Whereas labor continues to assimilate consumer issues into its leverage-grab for higher wages, dynamic base fares versus second bag charges best exemplify the issue describing why we need a flexible labor construct. This boom and bust cycle simply must end. We really need to think about this.

And if we are going to make an alliance argument, let's make one as differentiation is lost.