'Power Offers': Turning Airlines' Mistakes Into Value-Added Services

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Includes: BAIRY, DAL, NWA, UAL
by: Victor Cook

Nicola Clark reported in an article in the December 12, 2007, issue of the International Herald Tribune that the IATA predicts 2007 worldwide airline profits will be around $5.8 billion. Reuniting passengers with their mishandled baggage cost those same airlines $3.8 billion in 2006. And that number is bound to be greater in 2008. It probably will even exceed worldwide profits. This makes mishandled baggage a major problem for airlines.

UPDATE

This post is part of a series on airline mergers that led me to search for ways to improve passenger satisfaction and airline profitability. Carriers are caught between a rock and a hard place. The downward pressure on ticket prices means that earnings don't increase with market share. As a result, scale economies don't work, so mergers likely won't solve the problem. For details see my post on "Why Airline Mergers Don't Work."

Late Sunday afternoon, Susan Carey and Paulo Prada reported in their Wall Street Journal article that "Delta, Northwest Could Unveil Merger as Early as Tuesday." I guess the CEOs of these airlines would rather merge than manage. The story goes on to say they "… could go ahead without the support of Delta's (NYSE:DAL) 6,000 pilots … leaving negotiations with Northwest's 5,000 pilots for a later day."

I hope those CEOs read this post and begin rethinking their business model. They might become more creative in managing passengers' baggage and thereby turn the costly mistakes of mishandled baggage into value-added services. Or simply put, create 'Power Offers' through superior baggage handling. That's a bundle of services which would lead to 'vibrant satisfaction' among airline passengers. See "Creating 'Power Offers' in Air Travel."

BACKGROUND

Creating vibrant satisfaction among airline passengers is no small feat. Based on J.C. Larreche's book The Momentum Effect, plus my own 50 years of air travel experience, I proposed that Continental management create a "Certified Airtravel Valise" [CAV] program. Since Continental offers travel to over forty international destinations, these would be included in the execution of a CAV service.

I explored the first step in delivering this service in my post on "'Power Offers' in Air Travel: Should Continental Partner with the TSA?" It became clear that Continental management must establish a partnership with the U.S. Transportation Safety Administration's [TSA] Registered Traveler service if the idea of a CAV were to ever get off the ground. It also became clear that baggage cannot be boarded without TSA inspection. That brought up the need for additional partnerships.

Here I explore partnerships with the FlyClear personalized check-in service and the Luggage Forward shipping service as the second step in executing power offers in air travel. The goal is to create a more engaging travel experience as well as value-added revenue.

CONTINENTAL BEHIND THE CURVE

Today a search for the word "baggage" returned 1,224 hits on Continental's website. A search for "TSA" returned 36 hits. The phrase "Registered Traveler" returned an empty window that said "! Please Enter a Valid Search." Doing the same search for Virgin Atlantic returned the following link to a January 30, 2007 press release. Here are some excerpts from that press release:

... Clear® Registered Traveler announced today that Virgin Atlantic Airways will be the first airline to bring Clear to travelers at Newark Liberty International Airport.

"Superior customer service and stress-free travel are two things that our travelers have come to expect from Virgin Atlantic," said Chris Rossi, Vice President Sales and Marketing, North America. "Clear Registered Traveler will serve to enhance the Virgin Atlantic experience."

FLYCLEAR

What do travelers get for enrolling in FlyClear? Here are some of the benefits listed on its website:

  • Get through security faster, in under four minutes.
  • Don't worry about unpredictably long lines.
  • Access a designated security lane with special benefits.
  • Allow our attendants and concierges to help you as you go through the Clear lane.
  • Use your Clear card at airports nationwide.

How does one become a registered traveler?

Clear's simple, two step enrollment process begins online. Applicants create an account and fill-in basic biographic information. Then, applicants must go to a Clear enrollment location, where our attendants will verify two forms of government-issued identification, and capture a photograph, your fingerprint images and your iris images. This information is used to allow you access to the designated Clear lane at the checkpoint.

As of March 31, 2008, Clear had signed up over 127,000 people nationwide for a fee of $100 (plus a TSA application fee of $28). I've applied for a Clear Pass myself. It's easy.

The FlyClear service could be a compliment to a "Certified Airtravel Valise." Attendants and concierges might shepherd first-class baggage through the line without the passenger if a proposal by Continental and Clear were approved by the TSA.

LUGGAGE FORWARD

Another option mentioned in my post was the use of express shipping by FedEx (NYSE:FDX) or UPS (NYSE:UPS). It turns out the market is way ahead of me on this one. A specialized point-to-point shipping service for air travel baggage already exists. It's called Luggage Forward. Here's what the company says about this service:

Shipping luggage ahead to your destination creates a true luxury travel experience. Luggage Forward can send luggage to your hotel, cruise ship, golf course or vacation home within the United States, Europe, Asia, South America, Australia or virtually any other destination. Forwarding luggage allows you to save time at the airport by avoiding the long check-in lines and skipping the wait at the baggage carousel.

In short, your baggage never enters the air travel system so it hardly ever gets misplaced or lost. Here's how Aaron Kirley, a founder of Luggage Forward, has described The Growing Lost Luggage Problem:

When you relinquish your luggage to the airline agent at the check-in counter, the luggage begins a complicated journey to the belly of your plan. The conveyor system is owned and operated by the airport. Airlines pay terminal fees to cover the cost of baggage handling and the TSA regulates the baggage handling process. Although the airlines are responsible for your luggage, they have little control over the TSA's baggage handling process and therein lies one major point of failure.

What's the list price of Luggage Forward services? If you're traveling with a large family the price can add up pretty quickly, even if you use the economy rates. The March 26, 2008, MSNBC report on why "Weary travelers bypass hassles of checking bags" found that:

When Adam Kolodny took his wife and four children on a ski trip to Colorado, it cost him $1,200 to ship eight large bags of ski equipment and baggage round trip through Luggage Forward. But compared to the mess it would've caused at the airport, the price was worth it, said Kolodny, a 45-year-old resident of Great Neck, N.Y.

Today, a refundable coach-fare from JFK to Denver through Minneapolis on Northwest for two adults and four children runs about $8,000. That $1,200 luggage shipping charge amounts to a 15% premium. Traveling with four children and eight large bags of ski equipment plus luggage that would seem a bargain to some passengers.

Though Luggage Forward may not offer the deep emotional engagement that a Certified Airtravel Valise program could create among first-class passengers, it suggests a way for Continental to deliver a power offer to coach-class of passengers as well. The combination might reduce the costs of mishandled baggage while enhancing revenue.

VALUE-ADDED SERVICES

Should CAL management explore partnerships with FlyClear and Luggage Forward? Either or both of these services might be bundled into CAL's online reservation systems to create a variety of value-added baggage handling options and thereby increase customer satisfaction, reduce the costs of mishandling baggage and increase revenues. We used to call this a "win-win" proposition. A 'power offer' by another name is just as powerful. What do you think?

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.