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Airline Marketplace Inefficiencies

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I’ve been thinking quite a bit about how inefficient our airline marketplace really is, and how it continues to heighten consumer stress and add unnecessary costs for both airlines and their customers.

Specifically, I am talking about the market inefficiencies and related costs and unproductive consumer behaviors in the process of searching for the “best” airline offer down to the penny – let’s just say, the inefficiencies in search.

Today, it seems consumers feel compelled to search multiple sites, i.e., various OTAs and meta search, because prior experience has taught them that airline prices do vary from one site to the next. I am not referring to negotiated rates, but rather published fares where despite the fact the airline intends a consistent fare, variations exist from storefront to storefront. Often times this price variance is minimal (perhaps taxes rounded up or down!), yet this is enough to motivate consumers to keep searching, believing that the airlines are “up to something” with how they are pricing their product.

The reason for this is, for the most part, that the airlines themselves are not even pricing their own product. Instead, it’s a few third-party companies – primarily the airline’s PSS and the GDSs, using their own home-grown pricing and availability applications – that actually create these pricing discrepancies throughout the marketplace. Why? Well each of these pricing systems use “interpretive” pricing algorithm logic and tax calculation methodologies that, in the end, can (and do) easily create pricing discrepancies. And since the consumer search sites deploy these various pricing applications, variability in pricing exists.

The unintended (or maybe not so unintended over time) consequence of this situation is higher costs to the airline from excessive search and availability transaction costs (or scan charges) imposed on the airlines by those very same third party companies that create the airline prices. It’s a bit odd when you think about it. And, to top it off, the prevailing consumer perception appears to be that the airlines are taking advantage of their customers, when in fact the airlines are powerless over this issue… or are they? What if airlines could replace those disparate pricing systems with a single, airline-controlled pricing engine capable of delivering a “single source of truth” to all channels?

Perhaps now is as good a time as any to Ask the Question.

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