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Arm-long Itemized Bills:
A Symptom of Over-Regulation

by Roger Bourke White Jr., copyright April 2010

This essay was inspired by the latest airline industry revenue-raising technique: Itemizing their fares -- pay X for flying, pay Y for bringing baggage, and so on.

Why is this pricing formula now a hot item in the airline industry?

I see it as a symptom of the flying industry becoming ever more regulated. It is a symptom that the customers of the airline companies are becoming tickets to punch so others will pay for the services rendered. And, it is a symptom that the customers are losing trust in the service provider -- they fear the provider will pull cheap shots on them.

Compare the invoices you get from the telephone company, a hospital stay, or a hotel stay, to those you get from a jewelry store, watching a movie, or that ultimate in single pay transactions: eating at a buffet restaurant. The monthly bill from the telephone company and the bills for a hotel stay include dozens of taxes and fees, and the hospital stay itemizes down to aspirin tablets. Conversely, you don't pay-per-diamond when you buy jewelry, you don't pay-per-star when you watch a movie, and in buffet eating we have the ultimate in pay-one-price.

What's the difference?

In jewelry, movies, and restaurants the customer is the one paying for the service and the customer is the one who decides if the service being provided is worth the price. In such cases the customer has been provided all the information they need before the purchase is made, and... they trust the provider. In such cases the payment is a simple process.

In the case of phone bills, hotels, and hospital stays, the customer is only one of many people involved in the provider's process of getting paid. Other players are regulators, insurance, and subsidy providers. The more that these other people get involved, the less important the customer becomes. And, because there are so many people to please, there is less trust that the transaction is what it was promised to be. It is this latter feature that is the direct cause of the arm-long bill. The long bill is providing proof to the many parties involved that what was promised was accomplished.

How does this apply to flying?

Flying has long had a strong emotional component to it. This means that the flying industry has never been fully rational and business-like. In addition, it's a complex business. It involves airplanes which are complex pieces of machinery. It also involves airports, air traffic control, and most recently, distinctive airport security. All of these are complex businesses in their own right, all are operated and controlled by different organizations, and all are paid for in different ways that have little connection with the person who gets on the airplane.

On top of all of this complexity, there is still the emotion, which supports the over-the-top passenger security procedures air travelers call for these days, and produces the huge media circus which attends any commercial airplane accident.

When the aviation industry was just getting started -- in the 1930's through 1960's -- it was regulated, but its customers were jaunty adventurers and risk-takers, so they naturally had a lot of trust and the flying service providers could get away with simple pricing.

But as the industry grew from providing exotic travel to a few travelers to providing commodity travel for most travelers, the nature of the customers changed -- a growing number were flyers who were scared of flying.

Given the changing nature of commercial airline customers, and its still-high emotional content, it is not surprising that the flying business has steadily become more regulated, and is now over-regulated.

It is the airline companies recognizing the over-regulated environment they are operating in which is encouraging this latest change in how to charge their "ticket punches"... sorry, their flying customers. It's a symptom that the airline companies care less now about whether or not their customers trust them. Because of the growing importance of other interested parties on their business, such as regulators, airport operators, air traffic controllers, politicians, financiers, unions and media, they are adopting a more "take it or leave it"-attitude towards their flying customers.

When will this get better? As long as the process of flying people from one place to another is regulated by many agencies, and as long as the flying process remains an emotion-charged activity to many fliers, expect that over-regulation wackiness, such as arm-long itemized bills, will grow.

 

-- The End --

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