One phenomenon you see on a cruise is the fact that the cruise company is highly adept at extracting additional revenue from passengers. It’s a huge exercise in upselling. You pay extra for drinks and shore excursions and room service and photographs and a myriad other things. You even pay extra for soda and water. While cruises and guided tours are the most advanced in this practice, you see the same basic idea applied by airlines, hotels, and rental cars as well. An obvious example is the surcharge for checked baggage on the airlines.
Here on the cruise I heard a number of other passengers say, “I wish they had just charged me a higher price and then didn’t make me pay for my sodas,” or similar sentiments. I’ve similarly heard a lot of people moan about the checked baggage charge that comes with air travel.
So if these practices are making customers unhappy, why does the travel industry continue them? Wouldn’t someone identify this opportunity to differentiate from the competition and include all the extras for free?
No, clearly not. But why would that be? The answer is internet sales.
Online travel sales have created an environment where the primary decision point for choosing a flight or vacation or rental car is price. You go to Expedia (or whatever) and choose the cheapest option that meets your criteria. Even sites that try to account for other factors (like TravelZoo) still put huge emphasis on price. And when we all shop for our trips or vacations, we select the lowest price. Those sites don’t say that this flight comes with free baggage checking – or a meal or a blanket and pillow – while that flight does not. But it does say that this flight is ten dollars cheaper than that flight.
So with nothing else to go on, you’ll choose the cheaper flight. Even if it’s a dollar cheaper. There’s a little more information that goes into choosing a cruise, but the same basic pressure applies.
Now, if you’re in charge of pricing for one of these services, you have no choice but to squeeze your basic, published price down as low as possible. You have to win the price comparison in this environment. One of the ways to do that is to carve out everything you can and make it an extra. Charge for meals instead of including them. Charge for drinks. Charge for baggage. Etc. That way you win on Expedia, get the sale, and when the customers show up and realize they have to pay to checks their bags, they’re already locked in.
If you happened to have an airline that didn’t sell on these sites, you could differentiate by not charging for these things and promoting that fact in your marketing. That’s what Southwest does.
So you see, we’re doing it to ourselves. We all could change this behavior easily by not always choosing the lowest price, or by not shopping on web sites for our travel. But somehow I don’t think that’s going to happen.