Consumer knowledge, price discrimination and the best deal

Airlines are amongst the kings of price discrimination, so it’s not surprising that this oligopolistic industry also leads in other forms of market manipulation.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Price discrimination is about charging different prices for the same product, such as a transatlantic flight. The airlines long ago mastered the art of ‘yield management’ – reducing consumer surplus by squeezing the highest fare from each passenger on the flight. This will depend on when and where they bought the ticket, who is paying the bill and the time and schedule of the flight. Each cabin will contain passengers who can have paid almost any amount for the ticket, with many, many variations.

The key to success is the lack of a secondary market – there are no unwanted or surplus tickets for sale on eBay. Airlines have successfully lobbied governments to force customers to accept ‘named’ tickets that they cannot resell. The result is a bonanza for the airlines.

What about other smokescreen tactics? A favourite is ‘bundling’, where consumers are forced to buy a group of items for an overall price, concealing how much each part of the package cost. This makes price comparisons tricky. It also forces consumers to buy items they don’t really want.

Now the European Commission has found that at least 200 European airline websites are misleading the consumer. According to the report, websites are failing to show taxes and charges, and refusing to advertise the lowest fare prominently. The Commission has refused to name any airlines involved in order to give them time to improve their service.

According to the BBC article Airline websites ‘are misleading’ :

The Commission, which is the executive arm of the European Union, could force offending websites to close next year if they fail to improve. Fifteen different national airline authorities across the EU took part in the exercise for one weekend at the end of September. They trawled through 400 websites, and found half were not complying in one way or other with EU law.

Common infringements included:

prices on the home page that did not include taxes and charges “free” flights that were not free compulsory purchase of insurance attached to an offer

In response to the Commission’s findings, Ryanair called on it to widen the investigation “to cover the real scandal of unfair fuel surcharge increases being levied by British Airways, Air France, KLM and Lufthansa,” it said.

The <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />UK‘s Office of Fair Trading has already taken action against 13 airlines for leaving taxes, fuel fees and other charges off their advertised prices.