Archive for November 19th, 2007

Can Airlines Comply With EU Price Regulations At All?

In our earlier article we wrote about the European Comossion’s point of view on airline prices. EU consumer comissioner conducted a survey that included airline websites, online consolidators and online travel agencies. It tunred out that hardly any of the websites show prices in the way EU requires it. What are the rules?

Clear Pricing: A clear indication of the total price should be given in the headline price first advertised on a website i.e additional charges such as taxes, booking or credit card fees should be clearly indicated from the start rather than added at a later stage of the booking
Availability: Any conditions to the offer, particularly limitations on the availability of an offer, should be clearly indicated. Prices and special offers are often used to lure consumers into the process of booking a flight – in reality there are only a very limited number of seats available under the advertised offer
Fair Contract Terms: General Contract Terms must be clearly indicated, easily accessible and fair. Unfair practices include, mandatory insurance attached to an offer, or where consumers have to explicitly opt-out of an insurance clause, rather than opt-in. Contract terms and conditions must be available in the language of the consumer.

Does any airline or online travel site comply with the regulation?

In our short test we found no known airline or consolidator website that would fulfill all these requirements. The reason is: it is not possible under the present business structure and logic of aviation industry to comply with all these rules.

Clear Pricing

In an earlier article we wrote about the pricing logic of both network and low cost carriers. The situation is that this pricing model has been present in this industry at least since the 70s, but maybe earlier. It is not really understandable why it has become disturbing now.

Airlines have to use this pricing model, because airport costs are not fixed and in a few days it can change dramatically in countries where the local currency is not stable. If they have to reload their prices into the GDSs weekly or more frequently, it is not just a huge extra cost for them, but it requires extra human resource as well. For example in the case of Wizzair I took a look at their Hungarian prices and on their main page they advertised a price for HUF 0/ticket + HUF 5990 for the fees. When I tried to book it, the lowest fee I found with a HUF 0 ticket was HUF 6450. This is an 2 euro difference probably due to the exchange rate between EUR and HUF. Do they comply with the regulation?

Availability

Besides that whoever knows the logic of airline revenue management (we will soon write a post about it) also knows that yes, there are only a few seats available on a very low price, otherwise all airlines will turn to charity foundations and go bankrupt within a few months. Why is it different from a mobile company that advertises a brand new Nokia for $10, but only for customers who signs a contract for 2 years and orders high speed internet with it or something like that?

Fair contract terms

We can say that is is necessary to have an airline website translated into several languages. But let us take an example. If I am a Hungarian passenger travelling from London to Dublin buying tickets on Expedia. What is my language?

I have one more thing to mention: as we know airlines use GDSs to sell tickets and distribute their products. Their online booking engines are built on these GDSs and they follow the same business logic. The EU commissioner had problem with their websites. So what about the whole business logic behind it? If you walk into an airline office, the agent sitting on the other side of the desk will go through exactly the same process and will tell you the same information step by step as it appears on airlines’ websites.

So what is fair?

The goal of the EU commissioner remains unclear. So is it unclear for me how could the EU create such rules apparently without inviting airline professionals to discuss the issue. On one hand I understand that passengers would like to see clear prices and clear business rules attached to these prices. But in order to achieve what the EU commissioner pictures is a huge change for the airline business and it requires much more tolerance and patience. Besides that they have to know and see what their benefit will be, otherwise they are not interested in cooperation.

By Szafi
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Atlanta Fighting For Delta

Last Friday’s (16NOV2007) edition of The Atlanta Journal-Constitution has published a group of articles related to Delta CEO Richard Anderson denying all the reports from a day earlier which suggested that Delta is in talks with Chicago based United Airlines about a merger.

Delta plane with Downtown Atlanta in the background (c by usatoday.com)

Atlanta is surely interested in the possible merger news as it is the current headquarters for Delta Airlines and according to early reports the new merged airlines would have their HQ in Chicago, rather than in Atlanta. The two cities, which are 700 miles apart, reacted very similarly to the emerging news.We’d fight like hell” said Paul O’Connor, executive director of World Business Chicago. “It’s personal. It’s a matter of pride.” Sam Williams, president of the Metro Atlanta Chamber of Commerce countered: “The commitment of Atlanta to keep Delta is unwavering,” he said. “It always has been and always will be: ‘Keep Delta My Delta.” He also added that the chamber is supportive of Delta merging with another airline “as long as the headquarters stays in Atlanta.

At about the same time Delta CEO Mr. Anderson went through some tough minutes last Thursday in the Congress in Washington, too. He arrived for a hearing about the awaited air traffic congestion over the upcoming Thanksgiving weekend, but ended up protecting himself and Delta against the merger “rumours”. During the hearing Representative Lynn Westmoreland (Republican from the state of Georgia) challenged Mr. Anderson to assure him that Atlanta-based Delta was not involved in merger talks with United Airlines. Mr. Westmoreland said he was “dissapointed to read in the paper” about the talks. He said he had also read a statement Delta released Wednesday denying that such talks were taking place: “I want to look at you eyeball to eyeball” and hear you deny it, too.I was as surprised as you were, ther are no discussions. There have been no discussions” replied Mr. Anderson. The congressman from Newnan recalled that he was a “ramp rat” for Delta, his daughter was a flight attendant for the airline, and his wife worked in marketing with Delta (!). He said Delta is part of the Atlanta family, and “we don’t want the family to move north. I’m asking you to keep the family informed.” If the talks are indeed happening, it puts Mr. Anderson in a very-very hard position, having an alumni Delta family as the Congressman’s own family… This could be very useful in any other ways, but if the talks are true, it is a misfortune for him personally. But it would be a big help for Delta’s more than 26.000 emplyees in the state (of Georgia) which includes 3.365 at the headquarters alone.

Even though I’m staying in Atlanta at the moment for a month and a half, let’s hear the other side, too as Chicago is also a tough contender in keeping an airline HQ within the city-limits. United can trace its roots in Chicago to the 1920s, and the above quoted Paul O’Connor also said “They are us.” The two airports have been in a rivalry for a long time to clinch the busiest airport title, Atlanta hosted the Olympics in 1996, while Chicago is pushing to land the 2016 Olympics and show itself to the world, just like Atlanta did 11 years ago. Not so long ago Chicago officials heard rumblings about United Airlines looking at real estate in Denver (possibly to move their offices), and they replied with USD 6 million of incentives to persuade the airline to stay and to shift executive offices from the suburbs to downtown Chicago. O’Conner said if the merger talks “firm up, we would do what we could do.” United has about 16.000 employees in Illinois, almost all of whom are in the Chicago area.

Despite the two cities and their business communities fighting already (without anybody acknowledging the rumours) some people have a different opinion. A consultant from Chicago interviewed by The Atlanta Journal-Constitution said: “At the end of the day, it wouldn’t matter as long as they were on time. They all at this point aren’t very good.” No further comment is needed on that one, I think, but “The Tale of The Two Cities Keeping An Airline Headquarter” seems to have started…

(based on the 16NOV2007 edition of The Atlanta Journal-Constitution)

by balint01


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