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Air Rage - The Unhelpful Impact of Hyper-Competitive Pricing

21/01/2014 15:24 GMT | Updated 23/03/2014 09:59 GMT

If you are someone who regularly has to travel overseas for work, the perils of planning your itinerary will be only too familiar. Just ask any PA about how tricky it can be to book a flights to fit in with meetings in another country and you'll undoubtedly hear a tale of frustration at the lack of flexibility and terrible customer service they face when trying to plan a business trip.

The process is a great example of how the modern day problem of hyper-competitive pricing in an industry (or 'price wars') can have a detrimental impact on the business model.

We're all well used to the choices available to us when it comes to booking airline tickets. One option is to go with a budget carrier and pay a smaller fee. But if we do this, then inevitably we then have to shell out for things like extra (or any) luggage provision, choice of seats, additional booking fees and even using a credit card to pay. The face value of the ticket can often be doubled once you've paid all the extras, and last year, these 'extras' made some £17.3bn for airlines.

At the other end of the spectrum, 'flexible tickets' allow travellers to change their flights at any time before they depart, without any extra fees. This seems a natural fit for the business traveller, with plans changing at the last minute. However, as I've found to my cost, this does mean that from time to time, some services are overbooked.

Now, take it from me, all the additional fees in the world aren't as big an inconvenience as the prospect of having no seat at all. Equally, if you are booked in 'business class' on one flight, and end up in 'economy' on another, I doubt many people would be very happy. Even if you are refunded the difference, you're just not getting what you paid for or what you expected to receive, and as a customer that always leaves a bad taste.

If this happens, it's bad enough if it means you're late to your holiday, or arrive stressed. The stakes are even higher if this unscheduled change of plans means losing out on business through missing a day's work or cancelling important meetings.

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I understand why airlines overbook their flights - like any business they are trying to be as profitable as they can and who can blame them for that? But when it means you've got a long line of unhappy customers, you have to wonder whether it's all worth it in the long run?

So who's to blame? Is it the businesses themselves? With flexible tickets, they're effectively selling something that doesn't actually exist, and in doing so they are risking their customers having a bad experience.

The commercial pressure on airlines has been well documented in recent years, with rising fuel costs and taxes hitting their profits hard. If these flexi-tickets are a direct result of this growing pressure to maintain profitability, surely there has to be a better way. Being essentially forced into selling something you don't necessarily have just to keep up with demand seems counter-productive to me.

Or is it possible that we, the consumers, are to blame? With wages failing to keep up with rising inflation, we continue to demand that everything is cheaper and cheaper. So, does that put pressure on businesses to meet our expectations by essentially rolling out flawed, risky business models?

Surely there has to be a point where you just can't offer things any cheaper, or make them any more flexible, and the business model becomes unsustainable.

Instead, perhaps we should all think about adjusting our approach. Trying to establish a more transparent approach to pricing has obvious benefits, but we'd need to take a leap of faith.

As consumers, we might not like being confronted with higher ticket prices for sought after routes or flexible ticket options - perhaps we'd rather take the risk of being given the wrong seats on the wrong plane - but with prices founded on the going rate (based on the age old economic rules of supply and demand) at least everyone would be paying the right amount.

And in the case of the budget airlines, rather than being led up the garden path with the promise of a ridiculously low fare which is then clobbered with extra charges at the end of the transaction, we'd be able to have faith in the prices we're quoted in the first place, safe in the knowledge that we won't have to break out the calculator to figure out the final cost of the flights.

Of course it's not just airlines that are hamstrung by the status quo. Many industries are faced with the same dilemma of trying to remain competitive in the marketplace, but potentially upsetting their patrons from time to time by offering the earth and delivering the moon.

Transparent pricing isn't beyond our reach, but everyone (both businesses and consumers) would need to adjust their approach to the buying and selling process to make it work. Planning an overseas business trip should be straightforward, but because of the impact of these 'price wars' the possibility of a hard landing when it comes to the customer experience is never just a flight of fancy.

Alex Sullivan is UK Managing Director of the currency exchange company, World First