Unbundling airfares and the Indian context
For some time now, unbundling has been the watchword for low-cost carriers in India. While this is consistent with the practice by LCCs in more mature markets, India continues to have certain minimum requirements - which are driven either by convention or regulation. And given the local dynamics, it is probably easier to change regulation than challenge convention! For instance, it has taken a period of many many months and a lot of lobbying, for airlines such as SpiceJet and Indigo to start / resume charging a price for virtually all pre-booking of seats.
As an example, lets take A and B who paid the same price for a ticket that offered 20 kgs of checked-in luggage on a given flight. Person A has no checked-in luggage while B has checked in 15 kgs of luggage. In terms of economics, this is clearly disadvantageous to A, who has ended up paying a part of his fare towards carrying B's luggage.
In an ideal environment, A should be paying less than B, for this flight, and that's exactly what unbundling seeks to achieve. And that is the new reality.
Most importantly, it helps the airline focus on its core service (flying passengers from point A to point B) for a price that is right for both the airline and the passenger, and charging for value-adds which aren't really the airline's core job (eg, catering).
Other industries, such as telecom, have been able to do this successfully over the years.
For instance, the ability to check-in a certain quantity of luggage is a sort of "given", in India. So to take that benefit away or charge separately for it, will continue to be viewed as an anti-passenger move.
I'm not sure how many international LCCs even provide drinking water free of charge. That's a base-level expectation in India, so carriers do that, much as they may be within their rights to commercially charge for it.
In India, LCCs in particular run a tight ship, and will want to maximise profits. And so it is possible that unbundling, if taken beyond a point, can become counter-productive. For instance, if all seat selection were to be a separate service, that becomes a sort of back-door entry to increasing the ticket cost, which isn't a good deal for customers or customer-perspective.
Readers: Where do you stand in the argument on unbundling of services by airlines? Do leave a comment below.
Unbundling is good for consumers
The reason unbundling is a good thing, is that it minimises (if not eliminates) cross-subsidisation by passengers across fare buckets. More importantly, it brings down the the ticket price for passengers who don't want a slew of services that they aren't going to use anyway.As an example, lets take A and B who paid the same price for a ticket that offered 20 kgs of checked-in luggage on a given flight. Person A has no checked-in luggage while B has checked in 15 kgs of luggage. In terms of economics, this is clearly disadvantageous to A, who has ended up paying a part of his fare towards carrying B's luggage.
In an ideal environment, A should be paying less than B, for this flight, and that's exactly what unbundling seeks to achieve. And that is the new reality.
Most importantly, it helps the airline focus on its core service (flying passengers from point A to point B) for a price that is right for both the airline and the passenger, and charging for value-adds which aren't really the airline's core job (eg, catering).
Other industries, such as telecom, have been able to do this successfully over the years.
However, there's a catch
While unbundling is good, not all of it is neccessarily so. The problem starts when airlines end up wanting to unbundle virtually everything that comes with flying. And while they may well be correct in their own right, local conventions and customs might dictate otherwise.For instance, the ability to check-in a certain quantity of luggage is a sort of "given", in India. So to take that benefit away or charge separately for it, will continue to be viewed as an anti-passenger move.
I'm not sure how many international LCCs even provide drinking water free of charge. That's a base-level expectation in India, so carriers do that, much as they may be within their rights to commercially charge for it.
In India, LCCs in particular run a tight ship, and will want to maximise profits. And so it is possible that unbundling, if taken beyond a point, can become counter-productive. For instance, if all seat selection were to be a separate service, that becomes a sort of back-door entry to increasing the ticket cost, which isn't a good deal for customers or customer-perspective.
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| Credit: www.traveltechnology.com |
Unbundling needn't be vilified. Done sensibly, it can help reduce fares for those who don't need certain services, and make those who need those services pay more. In the long run, this benefits both airlines and passengers.
Readers: Where do you stand in the argument on unbundling of services by airlines? Do leave a comment below.
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