Air Travel Becomes a Commodity While nobody realized it at the time, the dramatic slashing of fares by the majors in the Summer of ’92 was a game-changing moment for the airline industry. It’s not a stretch to say that the era of Flying Cheap was inaugurated at that moment. And the last twenty years have seen the evolution—or devolution, reckoning on your purpose of view—of a replacement business model: one that’s supported more and more low costs and outsourcing.
While the majors tried to reinstitute higher fares—and were in fact successful at doing so a few times over the past two decades—fares were lower in 2011 than they were in 1991 by about 50% in real dollars. We are living the consequences of this reality today. Cutting back on everything from free peanuts to checked bags and outsourcing functions like maintenance and customer service to the lowest bidder, the industry is fundamentally different than 20 years ago.
A key part of this shift is the transformation of the public’s perception of air travel. Before ’92, the vast majority of travelers viewed the major carriers and the experience as something akin to a luxury item. In marketing, which at its core is the direction a company takes to deliver its products and services to the marketplace, luxury items are the most desirous to sell. Loyalty can be more easily built and maintained with customers who are willing to absorb higher prices. At this level, customers look forward to the introduction of new services and products. Price is not the determining factor. Relationships are the centerpiece and get cultivated over the long term. Building a cadre of premium customers ensures a sustainable business model. Retailers like Tiffany’s are noteworthy for selling products that cater to the wants of high-end customers.
If it’s wrapped in the signature blue box with a white ribbon and sold only by Tiffany’s at their stores or through their web site, it’s an exclusive product that can command an optimum price.