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May 09 2012

Travel musings

Whenever I travel on work, as I did last weekend for a conference, the peculiarities of the pricing of items associated with hotels and airlines strike home.

Like a lot of people, I was annoyed when airlines started charging extra for meals, checking baggage, and so on when they used to be ‘free’ (i.e., already included in the ticket price). But after some thought, I think that this new policy makes sense. The practice of bundling everything into one price was introduced at the dawn of airline travel but that was a different time. After all, when we travel long distance by train or bus we do not expect to get meals as part of the ticket price. Why should air travel be different?

The cost of food and baggage was always factored into airline ticket prices so we were paying for them anyway. What is different now is that only those who want them pay and that seems fairer. I would much rather pay for food that I choose to eat rather than for airline food that I may not like or want or need. I have no problem with people being given the option of paying extra for little perks if they want it, like early boarding, extra leg room, meals, and alcoholic drinks.

What I think annoyed people was that they suspected that when the airlines made this change, they did not first reduce ticket prices by the cost of food and checked baggage and then add them to those passengers that requested them. Instead passengers suspected that the airlines kept the old prices that had them factored in and added the new fees on top, to create another layer of profit.

A la carte pricing is a bit of nuisance because one has to make so many small decisions while buying the ticket and one has to be careful to make sure that one is not tricked into buying stuff one does not need. United Airlines used to have a deceptive ‘opt out’ policy for extra items that misled unwary travelers. When my sister was visiting the US she was surprised to find her credit card charged for a lot more than what the ticket price was. On investigating, I found that when buying her ticket online she had unwittingly accepted the default options, and these included extra leg room and priority boarding, things she had not wanted.

The thing that I find both amusing and irritating is that little rug at the boarding gate that only ‘elite’ customers are supposed to walk on, while us members of the hoi polloi are supposed to step around it. Some of the airline employees at the gate clearly think this rule is stupid and ignore it altogether while I have encountered others who are extremely vigilant, policing it loudly and vigorously to make sure that the unworthy do not step on the precious rug, much to the amusement of waiting passengers at this ridiculous symbol of privilege.

I have also noticed that the upscale hotels tend to charge extra for wireless internet access in the rooms (and it is not cheap) while some of the budget motels bundle them in as part of their already low room rate. I suspect that this is because the people who stay at the fancier hotels are less price-conscious, either because they are wealthy or because their stay is being paid for by their employers.

While it does seem to make sense that only those who use a service should pay for it, the question is why hotels apply this only to internet access and not to other services as well. Why is the use of (say) the gym or the swimming pool not charged as an add-on extra, especially since very few actually use them? I suspect that it is the very fact that for most people the internet is now pretty much an essential item that makes hotels charge for it as an extra. They know that almost everyone will buy it, providing them with a nice extra profit layer.

3 comments

  1. 1
    unbound

    “They know that almost everyone will buy it, providing them with a nice extra profit layer.”

    This is the crux of the issue you find with most items. Although some industries still have reasonable levels of competition, most industries do not. So you will see various methods to increase profits.

    A common misunderstanding is that cost is a big factor for these things, when, in reality, cost is typically only a driving factor for profit calculations. Market pricing is all about what the consumer will pay, and the vast majority of goods and services you buy are market priced, not cost-based pricing.

    One of my favorite business cases was that of the ATM. Most people are unaware that the development of ATMs was to cut costs for the banks. Their alternative would be to build increasing numbers of branches to support their customers. Branches are expensive to build, maintain and staff. The implementation of ATMs not only showed that the business case was successful, the banks got the added benefit of people withdrawing money more frequently which meant they owed them less interest (ATMs were developed back when banks offered interest on most savings and checking accounts). So the whole issue of charging fees for using ATMs was nothing more than a new profit stream for the banks. Many banks have backed down on the subject due to people objecting and some banks offered no fees, but still rather interesting for them to charge fees for something that saves them money.

  2. 2
    Carl

    This is similar to the reason I’ve come to appreciate the U.S. system of tipping waiters and waitresses, which I used to dislike. I see it as simply itemizing the bill by separating out the food and service, and doing so in such a way that I can pay for what I get in terms of the quality of service. I can’t elect to do without the service entirely, of course, like you can with an airline meal or baggage checking, but I can and do reward quality service with a tip higher than what it would have been were it simply incorporated into the price of the meal.

  3. 3
    Rob H

    My understanding is that fancy hotels charge for Internet because their customers are mostly business travelers, who aren’t on their own dime.

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