Continental Gets It Right, Scene 1

Continental Airlines will charge for meals this fall.  It’s about time.  And money, and choice.

Lots of travel managers and many more travelers will hate seeing this movie.

“You shouldn’t do this – it’s going to cost me more money!”  “You’re just like all the other airlines – unbundling every little thing to make more money”…I can hear the wailing all the way up here in the back seats of this movie theater.

And there, my movie-going readers, is the lesson you already know.  Customers want choices.

Imagine going out to see a movie, and being told that your ticket now costs an extra $7.  Naturally, you ask why, only to learn that your new higher-priced ticket includes a large bag of popcorn and a small drink.

“We’ve conveniently bundled our two most popular items for you – it’s easier this way.”  But I just ate.  “Sorry, that’s how we sell tickets now.”  Can I at least get something healthier than a soda?  “Sure, but that’s ala carte and will cost a bit extra”.  I don’t get a credit for what I’m not using?  “Sorry, no.  Please buy your ticket or step out of the line.”

Unbundling may feel like nickel and diming (yeah, it pretty much is), but  that doesn’t make it a bad way to price goods and services.  You trade a bit of inconvenience (more decisions to make, more data to track) but get a more efficient market.  And here’s the scene-stealer:  Efficient markets keep costs down.

It may feel like all this unbundling is driving your travel costs  up.  I’m not so sure that’s the case.  It depends on how sensitive the airlines think the buyers are to these types of price increases.  It’s hard to tell, given how often airfares change, if the total cost of a fare and a meal is higher – or lower –  than it would have been in the good old bundled days.

Markets have a wonderful way of sorting themselves out.  And like movie studios, airlines know they need to put out a good product if they want to fill up their seats.  Isn’t that ultimately what we all want to see?

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3 Responses to Continental Gets It Right, Scene 1

  1. Robert Freeberg says:

    Hello Scott —

    Logically the unbundling of pricing should result in a decrease of ticket price. Do we really see the benefit of prices decreasing as a result of airlines shifting to a direct charge for items such as meals?

    Robert

    • Scott Gillespie says:

      Hi Robert,

      I agree that unbundling should result in lower costs. You raise a good question about seeing the benefits. Today’s Wall Street Journal storysays CO expects to save about $35 million a year from the move. The question is whether CO will give the savings back to customers in the form of lower ticket prices. It might do so voluntarily, in hopes of stimulating even more ticket sales; or involuntarily, in response to larger competitive pricing pressures.

      Or it may hold ticket prices where they are and be happy with the cost savings and incremental revenue. It would be easier to tell what’s going on if fare prices were less dynamic, wouldn’t it?

  2. RobertKCole says:

    You make a great analogy between the airlines & the movies both have a lot of people who bring in their own food & drinks.

    I am continually amazed by friends (some with big annual incomes) that smuggle in their own food & drinks because they feel the price/quality/value ratio is out of whack at theaters.

    It isn’t about what they can afford, it is about paying extortive prices for marginal quality items.

    My personal feeling is that this will lead to a wider variety of better quality food being made available inside security near boarding gates and carried onto the planes by passengers.

    That may result in increased profits for airports and the food service operators, but reduce inflight demand, and as a result the variety of options available on the plane.

    In essence, this policy starts charging for something that most travelers deemed a low satisfaction experience.

    The result is less space allocated for food storage & preparation and ultimately, the ability for airlines to reduce the number of cabin crew to the greater of 1:50 seats on narrow body aircraft and 1 per exit on wide body benchmark.

    It is the end of an era.

    For example, in the 1970’s, on the approx. 1+ hour Dallas – Denver route, Frontier Airlines would serve a steak & lobster meal service on a 97-seat, all coach, 737 using only 3 flight attendants.

    Airline meals, RIP.

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