The Business Travel Coalition (BTC) has voiced concern in an Open Letter to be sent to major airline CEOs over a new policy announced by Northwest Airlines. The policy seeks to transfer some $70M in product distribution costs to customers through additional charges.A report in USA Today has outlined Northwest Airlines’ stance. The report explains that Northwest has announced it will shortly begin adding up to $10 to the tabs of customers who buy tickets almost anywhere but through the company web site. The additional fee will apply to tickets bought at airport counters, by telephone, and through travel-agent reservation systems, including Sabre, Amadeus and Worldspan. The fee is expected to be passed on to customers.
Charging customers for something they are already paying for in the price of their tickets would appear to be an unethical business practice that the U.S. Department of Transportation and States Attorneys General would want to consider investigating.
It is feared other airlines will follow in the steps of Northwest, with far-reaching repercussions for travel distribution.
The consequences for major network airlines that choose to implement such a policy would be significant. The indirect price increase proposed by Northwest would likely accelerate market share shift to low cost airlines (LCCs), dampen overall business travel demand, if embraced at the industry level, and result in more customer investment in technological alternatives to air travel as corporations finalize 2005 capital budgets.
According to Travel Weekly, Northwest says the changes are necessary to compete against low-cost airline rivals, most of whom have a higher percentage of Internet bookings, if they take GDS bookings at all. Apparently the changes will save the airline about $70 million a year.
BTC states the distribution costs are currently fully reflected in the price of an airline ticket. It adds that Northwest’s policy represents an attempt to double dip from corporate accounts and adds to complexity and costs for distributors and ultimately for the end customer. Travel management companies (TMCs) would be required to implement complex accounting processes to accurately allocate monthly invoices among corporate accounts. Travel Managers might not know if their TMCs were exempted from charges by Northwest thus adding a new measure of distrust into the travel procurement process. And business travelers who often need to cancel trips would be required to process expense accounts at a cost to their corporations many times that of the $7.50 non-refundable GDS charge.
Kevin Mitchell, BTC Chairman says the policy represents an endeavor to strong arm customers. “Like the equally misguided ‘use-it-or-lose-it’ ticket policy the major airline industry segment embraced in 2002, it would likely backfire,” he explains. “To achieve the distribution costs of LCCs, Northwest Airlines would need to truly reduce costs, not simply attempt to transfer them. Importantly, this policy embodies more contempt for the customer, exactly what drove legacy airlines into deep financial trouble in the first place.”
BTC calls on the National Business Travel Association (NBTA) and the Association of Corporate Travel Executives (ACTE) to take leadership positions and strong stands against this proposed Northwest Airlines’ policy.