Last week the FCC said it is considering allowing the use of cell phones and other mobile broadband devices on flights at altitudes above 10,000 feet. Predictably, some people cheered the idea and others gnashed their teeth. One thing is clear to me – there will be different pockets of value to different flyers and we can expect the airlines to segement customers and set prices accordingly. Although I think the airlines are very good at pricing strategy, I have heard from a number of people over the years they really hate airline pricing. They would prefer to have a single price for a ticket, and no extra fees for baggage, food, and other things. They say “Keep it simple so the customers can understand it.” So then I ask a few questions to test their preferences.
- Are you more willing to spend $700 on a ticket when you are paying out of your own pocket, or when your company is paying?
- I don’t like to do either, but if the price is that high, I prefer my company to pay.
- Do you agree that airlines need to make money to stay in business?
- Of course.
- So, if the average price needed by the airline to make money is $400 per ticket, are you willing to pay $400 when traveling on vacation, or would you rather pay $300 and have businesses pay $700?
- In that case, I would prefer the businesses pay more, unless of course it is my business.
- We do a good job of planning in advance, and if everyone does that the airlines can plan on how many planes they need and have lower prices.
- Generally if you buy your ticket at least 2 weeks in advance, air fares will be lower. To change that and have a single-price for all tickets, you have to subsidize the businesses that can’t plan as well as you. Is that what you want, or would you prefer to charge more to those who don’t plan as well?
- Ok, I agree we should charge more to those who don’t plan as well.
- Do you like sitting in the exit rows and having a place in the overhead bin for your bag?
- Yes
- When you are stuck with a middle seat in the back and have to check your bag, do you ever think it would have been worth it to pay a little more to board early and get a better seat?
- Yes, especially if my company is paying
You get the idea. The travelers on each plane have different circumstances and needs, and some value leg room, space, and the convenience of a last-minute ticket more than others. The airlines can keep the most people happy by charging prices that reflect those differences. The person who books a last minute flight, but still wants leg room and early boarding is willing to pay for that, but the vacation traveler on a budget is willing to plan more and live with some short-term hassle for a lower fare. Pricing is the most efficient way to allocate those things.
Now let’s get back to cell phones. There is a wide variety of cell phone user types, and each type of user travels on a plane at some time. Some view their phone as an evil necessity and are happy to turn it off. Others see their phone as a vital extension of themselves and it hurts to turn it off. Then there are people whose livelihood depends on using the phone, and when they turn it off they are being unproductive. Each different type of user will place a different value on new cell phone regulations. I expect the airlines to try to figure out those different types and offer prices for each.
I don’t know how well mobile phones will work when cruising at 25,000 feet, but I suspect the signals will need to be boosted. That looks like an opportunity for the airlines to add technology to boost the signals and charge a fee for that, much like Wi-Fi. The people who need to keep working, or feel the need to stay connected, will be willing to pay for the signal boost.
Conversely, there will be people who do not want to sit next to anyone who is talking on a phone. Those passengers might be willing to rent noise-canceling headphones, or the airlines could offer an option for phone-free seating rows. Perhaps phone-eligible rows that cost a premium would be in demand. Or, the airlines could allow phone use only in the last 25% of the plane. That would enable flyers to decide which is more important, early boarding and leg room, or the phone.
Historically, the airlines have done an excellent job of segmenting customers according to their needs. They have done a good job of unbundling prices and offering options to travelers for fees. Those who want the options pay more than those who do not value the options. I will find it interesting to watch the airlines work through the values of cell phone options.
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