There are so many illustrations you can use to compare a jet or a hotel room to other things in life and their earnings potential. But the key factor in both is once the jet door is closed or the day has passed in the case of an empty hotel, revenue for that seat or room can never again be won. Empty is never winning.
But right now, with capacity discipline (what some call price collusion in the space) and a robust economy, these are not the main problem. No the problem is how to extract max value out of every seat or room because they are all either 100% full or nearly full. Good problems to have if you run an airline or hotel.
Yesterday NPR had a piece that featured Gary Leff from BoardingArea’s View From the Wing. It was pointing out the obvious that BASIC (E class for Delta) airline fares are not lower in cost than the old cheapest fares but have replaced the bottom of the barrel fares. In other words, you get less for the same price than you did before.
I have pointed out before that the main goal of this is to drive consumer behavior. Delta was the first of the major airlines with these so called “cheap” fares but was smart enough to give full elite points when a traveler either chose this lowest fare group or was by their work forced into this lowest fare group. American decided to punish elites 50% of the way while United being United says elites get nothing.
When Delta first announced this new way to segment a jet further into this additional experience I said I would avoid this fare class because, for a few bucks, what you give up i.e. the shot at a 1st class upgrade, was just not worth it to me. After time, since I would still earn full points, I softened my stance to say I would consider BASIC fares for short hops where an upgrade does not really matter (again because I earn full points on Delta).
But this behavior of mine is due to loyalty or that is, my steps to maintain my loyalty and status with Delta. If I were flying AA every time I saw a BASIC fare I would be reminded that AA is only 50% appreciating me if I go this way. If I were flying United, well, I would consider another airline each time I went to price a ticket (and not just for BASIC fares but this is part of it).
There are only so many more ways to segment a jet and enhance the experience to keep gaining a few more dollars per seat. There is not an endless way to fee/charge/upgrade/downgrade/etc each passenger before they push back and I think we are at last at that point. But there is no need for anything to change as long as jets are full and we keep flying.
Now about hotels. I got a survey from Club Carlson and a number of the questions were about booking on sites other than the hotel’s website. You may or may not know that the trend is to block elite perks if you do not book directly on the website of the chain itself. This is clearly a way to, like with airlines BASIC fares, drive elites to forego some other perk from an OTA or other site and drive them to book where it will save the hotel the most money i.e. not have to pay a commission to an OTA.
So is the trade-off worth it? And that, after all of this, is the point of today’s post. If you are a TOP elite with an airline every single point counts. The same could be said for hotel status as now only TOP status (whatever silly name your chain calls this top level) really matters. Mid-tier level has so many less perks and often gets nothing more than someone without status that behavior is NOT driven by the promise of points or perks.
Take for example something outside of air or hotels. I have booked a cruise for my 30th wedding anniversary next year. I started at TopCashBack and then went to an OTA rather than just booking direct with the cruise line. Why? I am getting 12% cash back by doing this. This is HUGE. Now the cruise lines do not punish you as a “frequent floater” for this (yet) but they may one day. I would not care. I would just book whatever deal on whatever line I want and live with that. I am not nor will I ever be a TOP elite with any cruise line so if they try to punish my behavior with less points or perks I would simply move to another line who either does not or offers a better price (still starting at a rewards site first).
Lastly, from all of this, we have the impact on the value of points. Have you noticed you can not book a BASIC fare class on any airline on award points (yet). I can see that is what is coming next and you will have to book a higher coach amount of points to not end up in BASIC award class seats. With hotels, some punish your elite perks for award stays while others do not. Either way you are starting at the company website if you are spending their travel points so OTA issue avoided but then again a hotel does not make as much on award stays as paid stays and thus the reason some are pushing your perks when on a “free” night.
Customer behavior is a fickle thing. We put up with a ton and gripe and sigh and often put up with whatever is sent our way – to a point. Take me and Starbucks. Almost a year ago they decimated their loyalty / rewards program and I have now, a year later, not spent one dime with them since. I stopped buying in their stores and stopped buying hundreds of dollars in gift cards each year to give out to Delta folks as a thank you for what they do for me (I now give out Amazon gift cards instead). The airlines and hotels need to get that there is a point where they will push a consumer too far and it will be the final move where a buyer says “no more, I am out“.
Are we there with BASIC fares and no hotel perks unless you book with the chain direct? You tell me! – René
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