Unbundling Your Wallet

In a logical world, unbundling airfares, hotel rates and cruise fares ought to be good for consumers. But this is not a logical world.

What we’re talking about here is the dismantling of the old all-inclusive fare, where you and your three or four pieces of luggage were flown from one point to another and back, with meals, beverages and maybe a movie included — for a single price. If you wanted a pillow and blanket, they were provided and you got whatever seat in coach was available when you booked.

Then came the proliferation of extra charges for luggage, food, entertainment, pillows, aisle seats, even water. And now there is a name for it: unbundling.

Airlines are not the only unbundlers. Cruise lines and hotels are doing  it, too.

The unbundlers will tell you this is about choice.  Their customers can choose to pay for the features they want and not for those they don’t want. Why should you pay for somebody else’s meal or checked luggage when you want neither?

It’s a supremely logical argument. But there are two substantial problems with the way unbundling has been carried out.

The first is that the base price is rarely, if ever, reduced when amenities are peeled away and assigned additional price tags. If the fare for a flight is $300 and the airline charges $8 for a pillow, it doesn’t reduce the base fare by $8. So if you want a pillow, you now pay $308 for the same thing that used to cost $300.

So what? Maybe you don’t want a pillow or maybe you bring your own. No loss for you, but no win either.

Now, it could be argued that the fee for the pillow is a substitute for raising the base fare. If the airline needs another $4 per passenger (say, to pay for fuel), it could raise the fare by $4 and everyone would pay $304. But the airline calculates that half its passengers want pillows, and that it can leave the fare at $300 and charge $8 for each pillow.

Which brings us to the second problem. The pillow isn’t worth $8.

People who want a pillow must overpay for it. You could say that they’re subsidizing the fares of those who forgo the pillow. How fair is that? 

Of course, I’m just making a point about the pillow. I know that half the passengers won’t want an $8 pillow. In fact, very few will pay that amount. But that’s OK with the airline, which will be very happy to save itself the cost of providing pillows.

Same deal with luggage, although it’s harder to do without it. More consumers may simply have to pay the fees of $15 to $50 for a first or second checked bag. Yet I don’t believe for an instant that a checked bag can possibly cost an airline anything like $50 to transport. (Just look at cargo rates.)

So some people pay the $50 and the airline is happy. And some people do without the extra bag, so the airline saves the $10 or whatever it really costs to transport the bag and the airline is happy again. 

I guess that’s what you call a win-win situation. Except it excludes the consumer.

And don’t even get me started on the outrageous fees that hotels charge for wireless Internet connections.

I know that some hearty frequent travelers will insist that because they travel without checked bags, bring their own food on planes and never use hotel Internet connections, they are better off with unbundled rates. Maybe so. But they’re not much better off and other customers are getting ripped off.

Theoretically, it doesn’t have to be that way. Each element in an unbundled rate could be priced reasonably so that the total would be the same as the bundled price used to be. That would give consumers a real chance to save money. But that just isn’t how it’s been done.

Nor is it why it’s been done. Airlines, cruise lines and hotels aren’t trying to increase your choices. After all, you always had the choice to take or leave what was included in the bundled price. They’re trying to increase revenue.

You will see the same principle at work in restaurants. In some restaurants a dish will be accompanied by rice or a salad. In others, those items will be sold separately, à la carte.The total is always higher when it is sold à la carte.

There is a fundamental matter of psychology at work here. Small incremental amounts added to a base price somehow don’t feel as bad as a single higher price. So for the same reason that a prix fixe or table d’hôte meal is almost always a better deal than buying entrees and appetizers separately, a bundled airfare is a better deal than buying all the elements separately.

I guess you could look at it this way: Unbundling may sometimes provide a somewhat better deal for a consumer but it sure hasn’t proved to be a good deal for the consumer.


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