Archive for the ‘Travel Tribe’ Category:
The Travel Market Races To The Bottom
There is a war brewing within the on-line travel agency space over Google’s recent move with Google Flights and Google Hotels.
Google began positioning its new flight-finding feature at the top of general search results for airline booking information earlier this month. And its new competitors in the $110 billion online travel industry aren’t happy about the search giant crashing the party, according to a recent Wall Street Journal report.
Chasing The Market To The Bottom
Travel is hot for 2012 and beyond. An increasing number of people say they’ll do more leisure traveling in the coming year, and even more say they’ll fly if they can find good deals in 2012. Good deals are going to be hard to find. The airlines attempted to raise prices 22 times in 2011 (and nine of those attempts were successful).
Business travel spend is expected to have grown 6.9% in 2011 compared to 2010, hitting $250.2 billion. The forecast for 2012 is 4.3% growth in business travel spend for 2012 (or $260.9 billion).
While revenue growth in the travel sector looks promising the user experience continues to decline. Flying today is like traveling by bus with few frills and even fewer fun times. Consider some of the recent headlines:
- Airline Technology Leading to Customer Alienation
- Airlines Score Lowest In Customer Satisfaction
- 92% of Executive Unhappy With Business Travel Experiences
I could go on with an endless list but by now the picture should be obvious. Current market dynamics within air travel services is propelling a race to the bottom and Google knows this. In other words air travel suppliers have boxed themselves into competing on price and thus air travel services have become a commodity. The meaning of the term commodity is used to describe a service for which there is demand, but which is supplied without qualitative differentiation across a market.
Google knows that search has the greatest influence over consumer choices for travel services. 93% of people who seek information on travel services use search. Consumers seek ratings and reviews, news articles, word of mouth and blog post which in the end influences their decisions. When there is little differential in a market then price becomes the initial decision factor followed by “social influences”, i.e. quality of the experience.
As a result, the present online travel bazaar is very competitive and the margins are shrinking . The tight competition led the market to compete on price rather than experience. Google recognizes this and simply stepped in and made the shopping experience better. Google doesn’t care about the price of air service they care about providing the price to consumers seamlessly.
As fortunes are made by leveraging technology to become ever more efficient, there is yet far greater wealth to be had by unleashing the discovery of new experiences and creation of new opportunities. That is exactly why we created Social Flights.
Is There An Alternative To Commercial Airlines?
In Japan and Europe, high speed rail often competes with air travel for short distance routes. While it may take 3-4 hours door-to-door to travel 300 miles in an aircraft, the high-speed train can cover the same door-to-door distance in more comfort, the same time, and for less money. An automobile may need 6 hours to complete the same journey at a similar cost of ownership.
What many peoples fail to realize is the possibility that a community can operate their own airline. This alternative is being pioneered by Social Flights. The regionalization of air service is a new concept that allows communities to own and operate one or more aircraft maintaining control over the schedules and locations where the aircraft flies.
In the United States, a rift continues to grow between available air service and reasonable alternatives to air service. This creates a substantial burden on families; but it also creates a compound burden on the economy upon which those families depend for their livelihood. If corporate travel is constrained, the economy as a whole is constrained.
From this article in the NY Times:
Consider the new realities of air travel. Competition is decreasing, fares are rising and airlines are adjusting routes (and charging extra fees) in ruthless calculations to extract the greatest possible revenue per mile flown.
Many airlines will continue shrinking overall capacity and trimming domestic routes in 2012, and the Chapter 11 bankruptcy filing of AMR, the parent company of American Airlines, will merely exacerbate the situation. In 2012, American will “ground some planes and resize our network,” the company’s chief executive, Thomas W. Horton, recently told employees.
In addition, John P. Heimlich, the chief economist of the trade group Airlines for America, said, “Capacity reduction is one of the steps the industry is taking to preserve profitability.”
Several articles are now popping up comparing the alternatives that are available. An overnight Amtrak in a cozy sleeper car can cost the same for some routes as the aircraft - unfortunately, Amtrak is not universally connected to very many routes. High speed rail is still on the drawing boards but still many years away with fewer stops and likely connecting major hubs anyway. The other alternative is to simply drive; with the ground travel and delays incurred t hub airports, a commercial flight less than 750 miles can have an door-to-door average speed of around 70 miles per hour.
Michael Boyd, the president of the consulting company Boyd Group International, sums up the phenomenon succinctly. “The cost of flying airplanes across the sky has eclipsed the ability to support it at many communities,” he said in a recent forecast. In 2012, he predicts, airlines will accelerate the mothballing of smaller 50-seat jets, the workhorses for connecting service between many midsize airports, and even some big ones.
Social Flights can provide the knowledge, expertise, personnel, certification, and equipment to maintain and operate an aircraft fleet, as well as the social media backbone that allows people to self-organize around the aircraft asset.
As such, the community can create direct flights bypassing hubs, they can schedule flights for their corporations and shuttle their executives to new business markets for a price that is hugely favorable to any existing alternative; which is often nothing.
Another Travel Tax Clips 4M Wings
Few people take into account the social value of air transportation. There are very few studies that can measure the impact on a community when they are immobilized due to lack of a service that had previously been available. There is no true economic category to describe such loss except as a tax on travel.
A regressive tax is taxation that takes a larger percentage from low-income people than from high-income people. A regressive tax is generally a tax that is applied uniformly. This means that it hits lower-income individuals harder. Social Flights can restore this value with a regionalized public jet charter system.
Now we can add “Travel” to the list
Sales taxes that apply to essentials are generally considered to be regressive as well because expenses for food, clothing and shelter tend to make up a higher percentage of a lower income consumer’s overall budget. In this case, even though the tax may be uniform (such as 7% sales tax), lower income consumers are more affected by it because they are less able to afford it.
<via American Eagle to park planes, reduce service – Dallas Business Journal>
The small city gets the regressive travel tax
American Eagle announced that they would reduce frequency in a few select markets, they would discontinued seasonal service from D/FW to Augusta, Ga. Eagle would also discontinued service from Chicago to Tri-Cities, Tenn as well as discontinued service between Miami and Savanna, Ga., and Miami and Fort Myers, Florida. American Eagle would also hasten the cancellation of Los Angeles-Boise, Chicago-Calgary and D/FW-Fayetteville, N.C., service from Feb. 9 to Jan. 31.
So how many people would these reduction in service decisions impact? If we just add up the populations of the smaller metropolitan area in each city pair, we can estimate economic loss of opportunity under the assumption that the larger city would have alternate options. Fair enough?
Augusta, GA: 556,877
Tri Cities, TN: 500,538
Savanna, GA: 347,611
Ft Meyers, Fl: 618,754
Boise, Id: 616,500
Calgary: 1,230,248
Fayetteville, NC: 366,383
The Creeping Costs
The total is at least 4 million who will lose one more degree of economic freedom. 4 million people will pay a regressive tax denominated in time, money, and dignity in some form or another for the benefit of stockholders in American Eagle. 4 million people will lose the economic benefit of travelers from large cities.
On closer inspection, with the exception of Calgary and Boise, all of these cities are well within 1000 miles of each other. Each of these cities is well within 1000 miles of cities just as large as those that American Eagle is diminishing service.
While a hub and spoke model may break down economically, a regionalization strategy may work quite well. It has been proven that people are willing to pay a premium for direct service (otherwise the airlines would not be dropping less profitable indirect service). It is also obvious that people place a premium on their time and hassle as demonstrated by trends in online shopping, communication, and social organization.
These ingredients simple add up to a regionalization air transportation route structure enabled by online social organization tools such as Social Flights where community airlines can form around community priorities. Social Flights can restore this value with a regionalized public jet charter system.
KLM Social Airlines
Few people get on a commercial airplane to enjoy the fine food, friendly conversation and sensational view – but that may change as KLM continues to innovate in social media. Some may remember that KLM was the first to provide on-demand service from Europe to Miami booked entirely through social media.
This time, KLM is banking on the fact that people who have both an origin city and a destination city in common, would have other things in common as well. KLM observes that people share information with each other so freely on social media- so maybe they’ll share information with each other on “Social Airlines”.
Will something get lost in the translation between the virtual and the reality? Fortunately, Anne van den Berg was kind enough to provide Social Flights with a translation of her Dutch language blog, Editor Anne Daily:
You always have to wait and see who will sit next to you on an airplane. A crying kid or a smelly man, it is not always fun. Soon, this can be in the past. The Dutch airline company KLM will be offering seating suggestions based on someone’s Twitter or Facebook account. The goal, says an executive from KLM, is letting, mainly business, passengers network. I am very curious how this will work.
Well, we are asking the same questions at Social Flights. In fact we are attempting to fill small aircraft on direct flights based on a similar assumption that people of like interests would choose to share an airplane together. While the KLM starts with a full plane and sorts people by interests, Social Flights hopes to go one step further and use such data to “kickstart” scheduled “flash Charter Jet” service. So while KLM sees an important branding advantage, Social Flights sees and entirely new paradigm for air transportation – public Charter Jets.
Anne van den Berg continues with the following analysis:
- What kind of customers are you serving? I wonder, what customer are waiting for this service? Personally, I like having some conversations with my neighbour in an airplane, but, mainly when I return from a trip, I want to sleep. Nó contact. If someone will come and sit next to me with the expectation of discussing the state of the world in a highly intellectual manner, it is very probable he will be deceived.
- And what about privacy? I expect that customers will have to do an opt-in, but do you want to give everybody insight in who you are? If you put your Twitter information out there, sure that is public already, but Facebook? That is mainly meant for family and friends (although some people will stretch that definition).
KLM has since disclosed in this CNN article that mutual acceptance to use the social seating tool will be required. KLM was quick to note that the intention is not to create a dating game and they did not disclose if they would charge an extra fee for the service. Further, they they did mention adding any amenities in support of the friendship event.
This leaves me wondering what the implications of being “unfriended” in virtual space and reality space at the edge of physical space. In any case, Social Flights will be watching KLM developments actively. Thanks Anne for the tip and translation on this story – let’s share a flight sometime.
When Business Follows The Airlines Out of Town
Ok, now this airline game is becoming serious business. It is bad enough when small communities that never had air service options have given up trying to grow (where new opportunities fail to materialize and young knowledge workers move away). It’s a whole different matter when companies pick up and leave a community because the airlines pull the plug on air service.
[via When Airlines Depart Cities, Businesses May Follow : NPR]
Last month when Chiquita announced it was moving its corporate headquarters from Ohio to North Carolina, it said it was lured there in part by the number of flights in and out of the Charlotte Douglas International Airport. Cincinnati came out on the losing end of the deal because like so many other cities, it faces a shrinking airline hub, which can affect the city’s business climate.
US Cities are vulnerable to decreased economic development due to Airline Service loss
Regressive Economics
When a company leaves town, it takes with it the self-identity of the people who worked their entire careers to make that company great. When people are forced to migrate to find new work, they impose a cost on their families and futures. While corporations maintain economic freedom to make decisions in their own best interest, the public does not have the economic freedom to respond in their own best interest.
Daily Departures
Cincinnati; At peak, 2005: 673 daily (5 international); Current: 200 daily (1 international)
Pittsburgh; At peak, 2001: 579 daily (3 international); Current: 145 daily, (1 international)
St. Louis; peak 2001: 595 daily; Current: 250 daily
And, this is ONLY THREE Cities.
Looking at the above statistics; well over 1000 flights per day have been eliminated from these three not-so-small cities. That is 365,000 flights denying economic equality to over 50 million travelers in a single year. The scale of entrepreneur career-years alone squandered due to lack of air service is absolutely catastrophic for the American Economy. The irony is that people who move away need to travel more to stay connected to families. The economic friction imposed on communities is staggering.
“I remember coming here a few years ago and it was a hub of activity, you know, with all three concourses,” he says. “Now there’s only … one concourse left, if that, and it’s just really amazing to see this huge infrastructure supporting very little flights.”
Van der Horst with the Cincinnati chamber says she doesn’t expect Delta to go back to 673 flights a day at CVG, but she knows that for Cincinnati to attract and retain more business, it will mean landing more flights.
Social Flights is working overtime to create a Community Air Service Program that allows communities to access modern jet aircraft to fulfill their own travel needs whether they need direct flights, hub flights, corporate shuttle flights, or charter jet operations. Social Flights has the operational experience to teach communities how to manage their own air transportation operations through their own airports, FBOs, and responding to their own social priorities with modern aircraft.
Economic Freedom belongs to everyone. This is the cornerstone of the Social Flights business model – Social Flights is the people’s airline. Let us know where you want to go, before someone else does that for you….