Green Taxi

The airlines own the supply, but they do a poor job of getting the best prices for their product.  There are competitive sites online that arb out their prices against each other, yet airlines themselves merely rely on trying to time their adjustments in prices based on the supply they have available.

A Freakonomics blog author points out how some airlines, such as Northwest have put a bit of free-market capitalism into pricing their excess supply.  When they offer up tickets at the gate due to an oversold situation, they do not just offer a flat rate.  Instead, they let you leave an offer of how much the airline can buy that ticket back from you for (plus the free ticket on a later flight).  This way, the lowest several offers are what the Airlines actually end up paying.

This is smart and efficient, although it took them way too long to figure this out.  Fortunately, the infrastructure they, or others, are building is paving the way for improvement along this route.  The airlines allow for you to leave this offer when you check in online or at the kiosk.  Aha!  An electronic market!  They skipped right past having the agents at the gate try to be brokers in the pit and went electronic.

With these electronic markets they need to expand on other infrastructure already available, primarily the Seat Locator/Pinpointer/Chooser functionality.  How much more would you pay for a seat with legroom versus a seat that does not recline?  Me?  I would pay $100 per flight, absolutely.  You can find this information on SeatGuru.com and could use it to buy your seats more effectively.  How much more would you pay to sit by yourself or next to someone interesting?  There are plenty of social network travel sites that organize this information as well.

Lastly, the airlines could improve customer service by moving more of the price issues online.  While United will allow me to electronically upgrade my ticket online, many airlines make it painfully difficult.  How airlines still charge people money at the gate or ticket counter is beyond me.  They should move everything 100% online.  I just booked a flight to Europe and I have to wait to receive my paper tickets in the mail before I can go, or even adjust anything on the flights.  Paper tickets?  Snail mail?  Next thing you know I will have to fax my signature back to them to request an upgrade.  Also, Seth Godin points out that separating the purchasing part of the trip (painful) with the actually flying (should be enjoyable) is a major issue for the airline model going forward.  Separate the pain and pleasure and they might have solid business practices to build on top of this new “electronic market” business model.

In the end, it will all happen, just very slowly.  And we can assume that most of it will happen by third parties.  I would not be surprised to find Expedia buying SeatGuru and taking control of the seats in their Seat Pinpointer software by charging a little extra for the better seats.  Then, of course, three years later, the airlines will catch on and finally be up to speed with this whole (electronic) capitalist market plan that America was (re)built on.

*image source: nbcaugusta.com

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