Travel and unbundling: why do you always get less for the same money?

You’ve no doubt had the surprise of seeing that some of the services you thought were included have either disappeared or been made subject to a charge.

This is the effect of an underlying trend , “unbundling”, which is affecting all sectors of the travel industry.

Unbundling, so customers only pay for what they use

At the outset, as with anything involving a reduction in the service offered to customers, everything starts from a good intention.

Customers don’t use all the services included in the price of the service, so if we remove them they’ll pay less and be happy“.

That’s the pitch to the customer, which hopefully will turn out to be a self-fulfilling prophecy.

We first saw this happen in air transport with the abolition of free checked baggage. Most customers don’t use it, at least not on medium-haul routes, so why make them pay for it by including it in the ticket price?

And then the snacks served on board were reduced and withdrawn. Reduced to save money. And as the reduced service did not satisfy customers, it was withdrawn under the pretext (it was daring) of improving the customer experience.

The services we provide free of charge don’t appeal to everyone, so we’re doing away with them and replacing them with a totally paid-for but better offer“. That’s more or less what Lufthansa and Swiss are saying to justify the move to “Buy On Board”.

Isn’t a quality offer included in the ticket price possible?

Airlines vie with each other in creativity. The latest example is Qatar Airways, which is doing away with lounge access for its cheapest business class fares.

But hotels don’t do any better, and often worse!

The cynicism of resort fees

Hotels have always offered extra services for a fee, alongside their standard free offer, but over time all kinds of extras have sprung up.

First of all, resort fees. The idea is to charge for services in a resort that would be free in another hotel. Pool access? A deckchair at the beach? Going to the gym? No problem, as long as you pay a daily resort fee of a few dozen euros.

But that’s not all. Lately, customers have been reporting a wide variety of uses for fees.

Energy fees“, perhaps to pass on the rising cost of electricity, “destination fees” to justify charging you simply for being there, an “early check in fee” certainly because arriving at the hotel earlier than expected disorganizes the service….

The cynical thing is that in most cases these supplements are compulsory and were not disclosed at the time of booking until recently.

Improving margins…of course

Don’t look far for the reason for such practices: to improve airline and hotel margins. But the logic behind it is slightly different.

In the airline industry, the movement really took off with the arrival of the low-cost carriers, whose aim was to offer the lowest possible prices, which implied a minimal cost structure. This helped them win a lot of customers and make money from the volumes transported.

Margins came from the sale of additional services, such as checked baggage, on-board snacks, check-in at the counter, and payment by credit card…. which means that when all is said and done, the price is often higher than that of a traditional full-service airline.

In the hotel business, apart from resort fees, there were no major excesses until the pandemic. But the pandemic has given many operators new ideas: contrary to popular belief, many of them made a lot of money during the pandemic by reducing service to a minimum due to health constraints, and are pushing for the generalization of a business model similar to that of low-cost airlines.

Another possible option for hoteliers is to artificially increase the customer benefits of their loyalty programs. By charging for services that were previously free, and keeping them free only for a certain category of loyalty program members, they pretend to be adding new benefits for these members, when in fact they are simply devaluing the program in disguise.

Not exactly a win-win situation for the customer

But in the end, none of this would be a problem if the customer benefited from these strategies. And that’s not often the case.

In the airline industry, we won’t criticize low-cost carriers, even if you can guess that they’re not our cup of tea and we don’t frequent them.

When you pay €40 for a medium-haul return flight, you know not to expect anything in terms of service and attention. And if you want more, you have to agree to pay extra or travel on a traditional airline.

We are much more critical of the traditional airlines, which practice unbundling to a greater or lesser extent, particularly with “buy on board” in the medium-haul segment.

Our first instinct is to say that between providing a lamentable service for free and a good service for a fee, there may be a way of doing something decent for free.

But that’s not all. It has virtually no impact on ticket prices. Have Lufthansa, Swiss, SAS and others become much cheaper since they switched to Buy On Board in medium-haul? We don’t think so, and it’s certainly not noticeable.

Do they make more margin? Maybe, but in our opinion not that much. As the famous saying goes, “you’re born low-cost, you don’t become low-cost“. These airlines have a historical cost structure, and scraping a few euros off a meal tray improves things marginally but does not profoundly transform their cost structure.

So much so, in fact, that after comparing the costs and benefits of such an approach, British Airways decided to back down.

But in any case, we’ve never seen an airline share margin gains with its customers.

In the hotel sector, the gains for customers are a little more appreciable…provided that they do not intend to use a service linked to a supplement during their stay….and that the supplement is not compulsory.

But here again there’s a touch of dishon Take the cost of the swimming pool: whether it’s used or not, it remains the same, so it’s part of the hotel’s fixed costs. We can’t imagine the hotel saying “if only 10% of customers use it, we can’t finance it and we’ll stop”. So it’s “profitable” anyway, because its costs are borne by all customers. Therefore, those who have to pay 25 euros a day for access will prefer the days when they paid “all inclusive”.

Bottom line

Airlines and hotels charge for many services that used to be free, supposedly to “improve the customer experience” or “only charge for what the customer uses”.

Behind the hypocrisy of the approach, we see the financial interest for them, less for the customer’s wallet, who doesn’t really see the difference.

Maybe the impact on their image will make them back off? The example of British Airways may give us hope, but nothing more.

Image : cheaper vacations by udra11 via Shutterstock

Bertrand Duperrin
Bertrand Duperrin
Compulsive traveler, present in the French #avgeek community since the late 2000s and passionate about (long) travel since his youth, Bertrand Duperrin co-founded Travel Guys with Olivier Delestre in March 2015.

Trending posts

Recent posts