If Only The Airline Industry Adopted a Bulk Freight Model

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Sourcing Strategies

I had the joy this past weekend of flying on a fully packed United flight from Chicago to Boston. For those of you who know me, you might be surprised to see that I was flying United after my public tirade on United but I flew on points as did the rest of my family. I have read multiple articles this week on the state of the airline industry. The first, about United and US Airways charging $15/bag and the second from the Wall Street Journal about how air travel may eventually return to it’s glory days of the 1950’s…back when flying was a luxury, rather than a right.

So it got me thinking, what radical strategies could an airline deploy to cut costs? And how was that somehow tied to metals? Jet fuel, one of the biggest variable drivers of cost to the airline industry has risen to historic levels. (Southwest Airlines might argue that jet fuel is not a variable cost but not to worry, I’m not going to write about hedging strategies today). So weight has become a mega issue for airline executives. As we all know from driving cars, the more weight you carry, the worse your gas mileage. Let’s also forget for a moment the oh-so-popular airline cost reduction/revenue-enhancing activities to date including:  cutting snacks, charging for checked baggage, extra baggage, heavy baggage, re-bookings or telephone reservations. The airline industry (with a few noted exceptions of course), I would argue, doesn’t seem to have looked at how other industries purchase critical materials and package and re-sell them to their customer base.

 Let’s look at the metal service center industry as an example. All (or nearly all) of them purchase materials on a weight basis. In other words, they agree to a purchase price from the mills for semi finished products on a cost per ton or cost per pound basis. Yet the clever distributors sell on a unit cost basis (hoping their customers won’t catch the fact that it’s much easier to pad the price of something on a unit cost basis than on a weight per unit cost basis). There are exceptions of course to that rule where you do want to buy on a unit cost basis but for the most part, this is a clever method of hiding the true cost.

But the airlines that are charging for baggage have actually deployed the wrong strategy, failing to tackle the actual problem. They also don’t pay attention to total cost. For example, the goal of any airline would be to “lighten up” the plane, unless of course there was a means of recuperating the loss in fuel efficiency with a higher priced fare. The baggage strategy, as currently deployed, encourages passengers to do a couple of things: first, clever passengers will endeavor to use the overhead bins instead of checking luggage, so more boarding/de-boarding delays (which also decreases customer satisfaction). Second, though United, American et al may recoup some revenue, they haven’t actually done anything to reduce the weight of the plane which is something that customers wouldn’t see as much anyway (as opposed to the removal of snacks or increased fees for flight changes, extra baggage etc).

What could the airlines do? One radical idea would be to adopt a bulk freight model. Essentially, the fare is tied to a passenger’s total weight or cube – body weight, carry-on weight and checked baggage weight. Bulk items or oversized luggage would be part of this strategy. Premium fees are of course levied for business and first class but essentially passengers pay a consumption fare. What would this do in the long run? Initially it will set off a firestorm of fury of course offending various groups of people. But it will also encourage passengers to look for low weight alternative travel items (such as aluminum and magnesium alloy cases, which are being adopted in the computer industry). Furthermore, people will simply pack less. And who knows, maybe centrally organized sourcing organizations will ask their frequent flyer employees to diet as a cost reduction effort!

Carrots and sticks have to be applied creatively within the airline industry. Surcharges, extra fees and the loss of munchies have resulted in negative PR, customer dissatisfaction and resentment. Perhaps a ‘discount off of list’ for coming in under weight thresholds without the loss of the visible niceties would not only prove more pleasant, they may actually help solve the problem which is driving sky-high costs (pun intended) in the first place.

–Lisa Reisman

Comments (5)

  1. Jason Busch says:

    In this case, passing out “carrots” would be given an all new meaning …

  2. German Dominguez says:

    There is a Low-Cost airline that is going against the grain of what the rest of the airline industry in Mexico is doing. Instead of rising their prices, they have instituted a weight rewards system: http://tinyurl.com/4k97gs

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