Presenters:
- Robert Mayer, Ph.D., Professor of Family and Consumer Studies, University of Utah
- Brad Elbein, Regional Director, Southwest Office, U.S. Federal Trade Commission
- John Hawks, President, Association of Retail Travel Agents
- Kevin Krone, Vice President of Interactive Marketing, Southwest Airlines
- Perry Perfors, Head of Research on Services, Consumentenbond of the Netherlands
- Michele McDonald, Editor & Publisher, AMC Communications International, Inc
Other Speakers:
- Steve Hafner, Kayak.com
- Donna Rosato, Money Magazine
- Beatrice Tarka, Mobissimo
- Neil Bainton, FareCompare
- Beau Brendler, Consumer Reports WebWatch
Note: This is an edited transcript of the proceedings.
Robert Mayer: I do want to make one or two observations that, as an outsider, that I maybe can notice better than some. One is that we’re dealing with nice problems here, relative to some of the other consumer issues that I examine in my work, where people are dying or people are losing their life savings. We’re dealing here with happy stuff: travel. And even the bad things, like consumers not feeling like they can figure out what the best price is or who to buy from or when they should buy their airline tickets, there’s even a good side to that, because there’s that feeling of being a hunter, right? You’re out there looking for the best deal. When you see one, you jump on it and you just feel great. So that’s, we’re dealing with relatively good consumer problems, if you want to call them that.
And we’re also dealing with a relatively mature — by Internet terms — mature market, competitive market here as well. I’ve done some research on life insurance Web sites. Let me tell you: the travel Web sites are paragons of excellence, if you want to talk about bias. In comparison to life insurance Web sites that might say on the front, “Come here for a free set of comparative quotes. We’re going to help you. Best deal for you.” You put in all your personal information including your name, your address, your phone number, your sex life, your health behavior. And then what do you get in return? You don’t get a whole bunch of quotes. You get a message saying, “An agent will be contacting you shortly.” So we’re really dealing with a good part of the consumer marketplace. It’s not perfect, we’ll try to make it better. But that’s my perspective as an outsider.
So the way I’d like to run the panel is, we have five people, and I’d like to introduce them one at a time, briefly, and let each one of them speak for about five or six minutes on whatever is most burning to them in this area. And then we’ll have question and answer. I’ll throw out some questions, and you can do the same.
Oh, and there’s a housekeeping announcement. There are copies of the most recent travel studies from Consumer WebWatch available outside if you’d like to pick those up. If your suitcase is not already full, especially if you want to read today’s study — the premier travel, the business-class studies — that’s available today, so take a copy home with you.
The way I’ve organized it, we’ll go ladies first, and then we’ll work alphabetically among the men. That’s about as objective as you can get, right? Our first speaker is Michele McDonald. And she’s a travel journalist. You’re hopefully familiar with her Travel Technology Update newsletter. I’ve been reading it recently; it’s fascinating. She’s worked for many years in the area of travel journalism. She’s contributed to a number of travel magazines, including the Consumer Reports Travel Letter, while it existed. So, Michele, start us off, please.
Michele McDonald: Okay, I bring a little bit of a different perspective to this issue of how much the consumer needs to know, how much the consumer should be told right upfront. I often shop for skirts and shoes, and I go to department stores. And when I go into Dillard’s, they don’t tell me that that famous store at the other end of the mall might have a lower price on the same thing. And as far as what they stock, they can put as many Candies shoes on their shelves as they like, and I ain’t gonna buy them.
So, to me, a travel Web site like Expedia, Orbitz or Travelocity is very much like a department store. And there are things that make sense to stock. There are things that it doesn’t make sense to stock. Does the consumer need to know that every single time? I don’t think so.
I also think that a lot of — we apply a lot of rules to travel that we don’t apply to any other industry. And I think that’s largely a function of this being a deregulated, rather than an unregulated, industry. Nobody cares, for example, if the chairman of a toothpick company is an American citizen. But we have laws that say that the chairman of an airline must be a U.S. citizen. We have all these like archaic, leftover things from the regulated era. And even though the regulations only apply to airlines and to the GDSs — the global distribution systems — a lot of that also spills over into other areas of the industry, and we start talking about things like hotel bias, which is not illegal, immoral or fattening.
So we set a very high standard for the travel industry that we don’t set for Candies shoes, or for Dillard’s department store. And I’m not sure that we really need to have that kind of a standard, because I believe that competition works.
I believe that if you go to a travel Web site and you consistently get goofy results, you’re just not going to go there anymore. If you go to one Web site, for example, and you find that the shopping engine gives you a great itinerary with a great fare, and then you go to, say, an airline Web site that has a different kind of shopping engine, and it doesn’t give you a great fare, you’re going to sort of like start leaning toward the guys that give you the great fare more consistently. Some of you out there know what I’m talking about, and some of you probably don’t, and I’m not going to say.
But I think in the end, competition works. And I think if people understand that it’s a department store, they’re going to expect department store results.
Robert Mayer: Well, that’s sounding more like a business perspective than a consumer perspective, and business people were giving more of a consumer perspective. But we’ll balance it out, because our next speaker is Brad Elbein. And Brad is the Director of the Federal Trade Commission’s regional office here in Dallas. And if you go to their Web site, you can see they do things like gain $20 million in restitutions for victims of pyramid investment schemes. Or go after people who run fraudulent credit repair services aimed at Hispanics. So he does good work.
Before moving to Dallas, he worked in the Fulton County District Attorney’s office in Atlanta, and has published — and I always like the word “published” — has published a number of articles in law reviews. And, perhaps most important, he’s building himself a small sailboat. So when he’s done he can do all the traveling he wants with a minimal amount of reliance on the Internet.
Brad Elbein: You know, I always hate to be on a panel that’s late in the afternoon, but I’m going to try and start a fight later just to keep you all awake.
The first thing I need to say is that I am a representative of the Federal Trade Commission, but I am required to tell you that nothing I say is the official opinion of the Federal Trade Commission, which only acts through the joint issuance of statements by the commissioner, five commissioners, of which I am not and will never be one.
I wanted to talk a little bit about what FTC’s efforts in this area are. We as an agency believe that competition works, and we have two areas of practice that encourage competition. One is the anti-trust side, of which I know absolutely nothing. And the other is the consumer protection side, which is what I do, what my office does.
Now, on the consumer protection side, there are three ways that we try to protect consumers and, in protecting consumers, we try to encourage honest and fair competition. And those areas are, first, education; second, something that I’ll just call providing resources to consumers; and third, enforcement. I’m a trial lawyer. I would rather talk about enforcement than anything else in the world, but I’ll leave that till later if you all want to hear about it.
The first thing we do is, we provide publications to educate consumers about their rights under the law, but also how to be educated consumers. And we do that in a couple of ways. On our Web site and available in written publications are a number of different publications — it’s really hard to go through your notes when you’re trying to hold a microphone. Now I know why Madonna does that thing. No, I mean, the thing with the microphone wrapped around her ear. That thing.
We have a number of pamphlets which I’m not going to be able to find right offhand. But if you go to our Web site, there are a number of pamphlets to educate consumers about: when you’re buying on the Internet, what should you look for? When you’re walking into a store, what should you look for? What questions should you ask? What rights do you have in terms of return policies and warranties and so forth?
Another thing we’ve started doing recently that we do in the area of travel, in addition to other areas, is that we put teaser sites on the Internet. Maybe if we have time later, we can pull one up. It’s kind of interesting. They’re sites that say: You have this tremendous opportunity to go to Alaska for a dollar. And then when the consumer clicks on that site, they get a message from the FTC: You could have been scammed, because this is too good to be true, and so forth, and then informs consumers of their rights. Those are actually very effective, because the people most likely to click on those sites are the people most likely to be victimized by false and misleading advertising on the Net.
The second area that we provide help to consumers is that we provide resources for consumers for complaints, for example, if they’re having problems. The discussion I heard earlier, the presumption was — I was scribbling notes to myself — the presumption is, everybody’s going to have a great experience all the time. And that may be true for 99% of the cases, but there’s the 1% of the cases — or hopefully much fewer, the minuscule number of cases — where people have miserable experiences. And my question, as a trial lawyer, my question as a consumer lawyer, our issue as consumer advocates is: What happens when people have a bad experience? Are you there for them?
So one of the things we do is, we provide opportunities for consumers to make a complaint to let other people know that there are issues. I’m going to mention two Web sites. One is a national Web site called Consumer Sentinel, which is where American — well, anybody who’s victimized by an American company — can go and make a complaint on this Web site. You go to the FTC Web site and then click a link that says “Consumer Sentinel.” And I can talk about that later; I don’t have much time to describe it.
The other is eConsumer.gov. This is an international site that the Federal Trade Commission and, I think it’s 19 other countries around the world, mostly in Europe, are joining in this site, that provides a number of different consumer resources, including a place to make complaints, information about consumer rights in different companies. And something really important that’s going on is, an international directory of alternate dispute resolution providers. Because, as you know, the law here and in Australia — if I have a problem with an Australian provider, I may not have jurisdiction in a court in the United States, and I may not even have a Federal Trade Commission to go to.
And then the third area, which I’ll leave till later, is enforcement. Because, unfortunately, despite everybody’s best efforts in this room, there are people outside of this room who are committing fraud, misrepresentation, unfair and deceptive practices, and occasionally we need to step in and bring some enforcement actions, because that makes all of you all look better. It makes everything — it makes the market more fair, and it gives consumers some redress. And I’m over my time, so I’ll shut up.
Robert Mayer: The third speaker is John Hawks. And John wears quite a few hats [INAUDIBLE] business, a professional. He’s President of the Association of Retail Travel Agents. And I guess that’s my one qualification here. My mom was a travel agent for her whole life and was a member.
John Hawks: Bless her heart.
Robert Mayer: But his organization has also created the Consumer Travel Rights Center, which advocates for travelers, business and leisure, if there is such a distinction. And in that vein, John’s also an author, and has published nine books on travel rights, including his most recent — I think it’s most recent — The Frequent Traveler’s Guide.
John Hawks: Yes.
Robert Mayer: What Smart Travelers and Travel Agents Know.
John Hawks: First of all, thanks to Beau [Brendler] and Bill [McGee] and everyone who’s put this conference together. This has been instructive for me. I’m leaving with a lot of pages of notes from the previous sessions. It was great seeing everyone being open about where you are with your part of the travel industry. And I definitely learned a lot about some of the new search engines coming out today. That was good.
I won’t sing the praises of retail travel agents. My group, ARTA, is the Association for America’s Mom & Pop, small independent neighborhood travel agents, as well as a growing number of professional home-based agents. Along with our sister group, OSSN — many of you know the Outside Sales Support Network — we represent about 8,000 travel agents and agencies around the country. And we’re looking to have our best year ever this year. The rumors of the death of the small neighborhood travel agent are greatly exaggerated. And I think I’ll leave that for any questions you might have.
I thought, based on some things that Brad was saying, actually, I kind of changed course a little bit. I want to talk to you a little bit about from what I hear from our agents, and what we hear through our center, the nonprofit group that we started in 2000. I want to share with you what I believe we hear most that consumers want to know about online travel sites for them to judge you to be credible.
I will tell you I have a bias upfront, in that I believe you’ll always pale in comparison to the credibility of a professional, aggressive local retail travel agent. Shame on us if you ever take away one of our clients. If we’re doing our job, you should never take away any of our customers. But, if it happens, it happens.
What I want to share with you is just some thoughts about what we hear from some of those clients from time to time when they book online. As far as building credibility, I think that it is the biggest challenge for online sites is that you are trying to turn customers, who are largely — honestly, if we were all sitting around the bar later tonight, we’d all probably agree — at this point in time are probably choosing you based on price. I hate innovations like Orbitz’s Care Alert, because that is tough for our folks to duplicate. So I hate seeing things like that come down the pike. But, by and large, we really compete with you on price. And I think beyond that, your challenge to gain credibility is to turn customers into clients.
I will share with you my personal opinion. I think that is going to be tough for Web sites to do. Because the biggest hurdle you have is that you don’t have, you have very little human contact, and you have almost no local presence. Those are competitive strengths that the small retailers have that will be tough to duplicate — again, if we’re doing our job on our end.
Beyond that, though, there are a couple of areas I want to highlight for the online folks who are here. One is that consumers really want to know that you are competent. You’ve largely addressed that point. I think everyone would agree — whether it’s the Big Three [Expedia, Orbitz, Travelocity], any of the second-tier sites that are out there in terms of size, or any of the specialty Web sites that we’re seeing nowadays that are coming online — everyone agrees, I think, that if you’re out there, if you survived the airline commission cuts, if you survived 9/11 as a travel Web site, and you’re still here today, you probably know your business.
Beyond that point, consumers want to know that you’re competitive. I think that’s a measure of credibility. Are your prices as competitive as what I can get through my local travel agency? And, again, I would argue that you have jumped that hurdle as well.
The last two are areas I would challenge you on today, and I would love to hear some back and forth on. I think a third area where online sites by and large do miss the mark is: consumers want to know that you’re on top of things. That you know the latest news in the travel industry and what’s going on. That you’re not just selling me something because you got paid to tell me that, or you’re selling me something because it’s the latest special.
I love the illustration earlier. Someone mentioned the cork board with travel specials. What Orbitz does with Care Alert is a small example of how you are succeeding at that. But I think by and larger there are a lot of consumers out there who still wonder — Tracey with Travelocity put it best. The travel experience really starts after the sale. That’s just the very beginning of what should be a long process. And I think it’s fair to say that a number of sites out there do fall down on that point, and that’s where the credibility questions come in.
And the fourth area is one where we’d love to have more help from you on. Consumers want to know that you’re on our side as consumers. That you’re advocates for us. That you’re not just sales people. If you only want to be selling travel to consumers, you will probably always be competing on price. And you’re always going to be driving yields down for everybody, including your supplier partners. If you want to grow beyond that from customers to clients, a challenge I would identify for you is that you have to be more than a sales person. You have to be consumer’s advocate.
We stay up at night with our association trying to think of more ways for our local people to pound that message home with their local clientele. A big example of this is in the area of travel rights, legal rights. What are consumer’s legal rights? What if something goes wrong with an airline ticket? You’re overbooked, and you happen to be flying out of a European Union airport. Are you telling your customers today — can I go to your Web site today and find out that last week there were major changes in EU airline regulations that will protect me, even if I’m on an American carrier, if I’m flying out of a European airport? Are you telling me that today? If you’re not, you’re not doing everything you can do, I would respectfully suggest, to be a consumer advocate.
And I can tell you — one last comment from a corporate standpoint — we see in the travel industry, from my perspective, very little cooperation from the big companies, the big online companies when it comes to fighting legal and legislative battles on behalf of consumers. If we could get a little more help from some groups on issues like extending the federal rules that protect passengers on bankrupt airlines. We fought so hard for it last fall, and we didn’t really see any support from the Interactive Travel Association or any of the major online sites.
And so a challenge I throw out to you is, if you’re going to walk the walk of being credible with consumers, you have to do more than just close the initial sale with them. And part of that means at some point you have to do some of the heavy lifting when it comes to expanding their legal rights as travelers.
Robert Mayer: Those were meaty comments. I’m sure we’ll get some comments from the audience on that.
Our next speaker is Kevin Krone. Kevin has worked with Southwest since 1992. He’s now Vice President for Interactive Marketing for Southwest. Southwest is one of my heroes, because it keeps the airfares in my local market a lot lower than they would be otherwise, where Delta’s got about 87% of the flights.
And then Kevin helped make me a hero with my son yesterday morning as I was leaving for work. He said, “Where are you going? On another one of these boondoggle conferences?” And I said, “No, no. Here’s an article in today’s paper about one of the speakers on my panel; it’s about Kevin. And another one is about Southwest’s innovations. Their new Ding service, which he’ll tell us about.
Kevin Krone: Thank you. Let me say a few ground rules for your [INAUDIBLE] for me, personally. First of all, in terms of disclosure, if I say anything that’s offensive to Brad, then it’s my personal opinion, not Southwest’s. And if Brad likes it, then it’s Southwest’s idea.
Anyhow, I’m starting to feel like the lone wolf in the room here. That there’s several intermediaries and, I think, I’m not sure if I see other suppliers here. And I’m sorry I didn’t get to join you this morning, so if I say something that’s completely counter to something that was said today, it’s just my own ignorance. It’s not something that — I wasn’t sleeping, at least not here.
And also, I’m unfortunately going to have to go back to where I was this morning immediately after I finish up. So it’s not that I’m running away scared. I just have to get back to another meeting. But you can always welcome a dialogue with me.
Let me just take a few minutes just to — I was chomping at the bit in the last panel and the whole discussion about bias, and the economics of what’s going on out there. It’s interesting to hear even the panelists tell stories, like Beatrice [Tarka, of Mobissimo] who said in the “old days” — it was just a few days ago; good timing, Beatrice — that she went travel agency to travel agency to shop for fares. And why would you do that? Well, it’s because, one reason, I think, is that there’s a filter between the ultimate data and the consumer. And so there’s all sorts of things that drive behavior in that chain. So that just the fact that the data wasn’t pure leads you to shop multiple places.
Well, that’s translating now online, and the search tools that are evolving right now are certainly taking a step to address that as well. But as it was said, not all of the carriers participate. We happen to be one that does not. So then that also creates doubt in that data. So it’s going to be tough.
I agree with Michele that I think the economy and capitalism ultimately does work, but it’s also going to be tough, because these guys have a hard challenge, because as carriers don’t participate, at some point it loses —
[END OF TAPE]
Kevin Krone: …that bias leads to discomfort for the consumer, and discomfort understanding — as a business –means probably you’ve lost some sales. So that pure data is absolutely critical, and it’s something that we focus on in all that we do.
First of all, Southwest’s business model, and what we grew up on, was giving you low fares. We don’t play tricks or make you guess the secret handshake so that you can get a low fare. We delight in giving you low fares. And our success, I believe, will come through integrity and disclosure. Again, we don’t do hide-and-seek with our fares.
So what does that manifest itself as? For us, integrity leads us to develop tools that put our money where our mouth is. So back during the launch of the Web site, the very nature of our fare and schedule display was built to show you the complete full disclosure of the options available to you. That’s a lot different than many of the models that are out there today, which you put in your search query and it goes off and does what I call the Black Box, and it comes back and it says “Poof! Here’s the answer to you. You can go at 8 o’clock, 10 o’clock or 4 o’clock, and the fare is X-dollars.” But you have not necessarily any idea, depending on the technology behind that Black Box, if I’d gone at 6:30 instead of 8, I could have saved $150. Well, how does that hit you as a consumer, that I’ve made an informed decision?
And the problem is, we’re getting so much disclosure now that it becomes almost overload. So it’s a balancing act, ultimately. But what we’ve done is merged that onto one screen, so you see our fares across the top and you see the schedule. It’s basically a spreadsheet. And where that fare and that flight are available, there’s an option to pick it. So we give the consumer complete control.
Well, we one-upped ourselves. We said, “Let’s get an e-mail product.” So we’ve got Click-and-Save out there. Four and a half million people a week receive an e-mail from us. But that still was — we kept innovating. We came up with our shortcut product, which is basically our calendar of when fares are available. And, again, making it easy so that a customer can get right to that fare that they want, instead of searching and hunting and pecking.
And then our latest invention was the Ding. And we’ll show you here. We took the liberty of pre-installing it, but basically, simple process to install it. Whoa. Okay. I think you have a bug on your PC. Anyway, here’s — you go through the install process here. I won’t bore you with that, but if you’ll go ahead and start the application up. It resides in your system tray, and it basically checks in with Southwest periodically for us to be able to send it a message. And yesterday was the first day.
If you go down to your Start menu and Programs, and Southwest, there you go. So now we’re starting the application. It’s kind of hard to see, but it is in fact down here in the lower right-hand corner, in your system tray. If you’ll go ahead and open it.
So basically we have an offer going on right now. First thing they got, since we just installed it, is we’ve got a thank-you message. And then we have Terrific Tuesday Treats. These are very short-natured sales, but extremely aggressive pricing. So if you take, go ahead and click on that; we’ll just see what’s going on here.
So we’ll just pick out a market here. So you basically fill out the form and pick the market you want and go, but all the details are right here, the city pairs and the pricing. I don’t see one that — yesterday, for example, we had an L.A. to Ft. Lauderdale, I believe in the nature of like $74 one way. So we definitely mean it when we say these are great deals, and they’re exclusive to the customer.
But this is important to us, because it gives advanced notice to the customer. It gives them first crack at low fares. And it’s responding to something that they’ve asked for, which is: Tell me when you have a sale, because I want to be one of the first ones there so I can go when actually it suits my travel needs. So this is just a continuation of our strategy to fully inform the customer and make the process simple and easy for them to use Southwest.
Robert Mayer: Thanks. And finally, there’s Perry, who you’ve had introduced to you this morning. Any comments about what you’ve heard on this panel, or on the previous panel?
Perry Perfors: I think it’s not necessary to introduce myself again. You’ve heard me. I may add two personal concerns. Although I like the hunting for the lowest price, I also realize that we have two maybe more important things at stake.
One thing is the quality of the service itself. The price competition should not be stressed that far that the quality of the service or the safety in the air can be damaged in what way. And on the other hand, we have the big pollution problem. If you imagine that all the people in China and India would travel by air because it is that cheap, like we do, I don’t know what happens. Nobody wonders, probably.
But I sometimes wonder if I’m hunting for the lowest price, and we have a lot of success with the hunt, I think. The good news is, of course, what Bill noted — that we rose the capacity load from 63% to 73% in 10 or 15 years. And that’s a profit for everyone, not flying with empty airplanes. So if that is the result of the competition on the Internet, giving a good communication between consumer and provider, that’s a good profit.
Robert Mayer: I’d like to ask my panelists — and you can tackle this in any order you wish — from a consumer’s point of view, if you could change one thing in the online marketplace to make it more consumer friendly for you, what would it be?
And just to give you a second to think about it, I’ll tell you what my fantasy would be for my bizarre marketplace. It would be that I would have a little more information about how fares change through time as you’re leading up to a flight. Because I may have a conference, say, in May. I know I have to go on a particular date. And I say, well, 10 years ago I would have bought my ticket right away, because I would have assumed that the earlier you bought it, the cheaper it was going to be. And then there was a period when I thought if I waited till the last minute, that would be the way to get the cheapest flight. Services like Ding and other alert services can help you do that.
But I’m still, as a consumer, in the dark about when the best time to buy is, and I’d love to have information on that. So if I could change one thing, that would be it.
Brad Elbein: To me it’s clear that the one thing that should be a given is complete information. And I don’t mean complete information as of four stars or five stars. I mean complete information: What are the additional charges you’re going to charge me? What’s my cancellation fee? What’s my change fee? What are my shipping and handling fees? What are all the junk charges that you’re going to add onto the ticket?
Because we all know, I know as a fraud prosecutor and a prosecutor of consumer problems, that those are continual problems. We can say: Well, we’re online, and those problems are mostly offline. That’s not true. The problems that we see offline are all problems online, and the problems are worse online, for reasons we can discuss some other time. But complete information is what, in my opinion, you all should be aiming for. Give me complete information, let me make an educated decision. Don’t give me partial information and make me try and compare apples and oranges.
John Hawks: I guess I would add to that complete information about, along with the product itself, complete information about how the supplier’s policies or some general legal concepts affect my trip.
We’ve identified 27 commonly asked questions, in terms of travel law, that most consumers ask. Something as simple as that that could be opened up by a consumer, so that I could learn as a consumer that, if I’m on a cruise and a hurricane’s heading my way, yes, the captain does have the right to change the itinerary and, yes, by and large, I’m pretty much out of luck as far as any argument with that. Just some basics.
Along with the information on the product itself, I’d say add some information about what are the policy, how do the supplier’s policies and travel laws affect me. But make it very simple, the basics.
Kevin Krone: I think that — and this is somewhat selfish, because it gets me both as a Southwest employee and personally in my pocketbook — and that’s the amount of taxes that are put on travel. I think one of the stories that sticks out in my head — it’s an international one, but I think it’s still illustrative — and that’s, EasyJet threw a dollar or a penny — I guess a pound in whatever the sense of pounds are — sale. But with all the taxes, it ended up being 50. Now, taxes are important. So I’m not saying there should be none, but when you have that kind of a markup — and if you think about it, we’re selling, as you saw behind me, some fares for $30, and then your rental car is $45 for one day, it just — how does that add up? I don’t think it does.
If I could take one second and do a devil’s advocate to Brad, I completely agree that information is very important to customers, and giving them a sense of ultimately, at the end of the day, this is going to cost this amount of money. The trick with it is balance.
For example, when we run ads online, we can tell with very good certainty that, if we’re able to put a price point in a banner or a message, we’re able to convert a lot more than when we put something generic. Perfect. Now, the problem is, there’s a whole bunch of disclaimers I’ve got to put in the banner or very close to it when I do put a price point. So am I disadvantaging the consumer by not putting a price point? Because it’s pretty darn relevant if I can say “Baltimore to Chicago, $29, but click here for more details,” versus just saying something generic like, “Please fly me to Chicago,” which the consumer may even bypass something they would be otherwise interested in.
So I completely agree, it’s necessary, we can’t do the opposite of that, which is to say $29, and then by the time we calculate all of our fees and everything else, it’s $69. But there is a balancing act there, and I think sometimes too much disclosure ends up harming versus helping.
Brad Elbein: Let me just respond to you by saying that I personally find your Web site to be relatively — to be very good about disclosing what the additional fees are. If you advertise a price, I know that there are going to be restrictions; I can find it on your Web site within a click.
There are other sites — some of you all are here, others of you all are not here — where, I’m a trained investigator; I can’t find what the restrictions are until I give you my credit card number. Now, maybe that’s legal, but it ain’t right.
Kevin Krone: I completely agree with that. And so, again, I want to emphasize, I’m not saying that that’s appropriate behavior. I just also want to throw out the thought that sometimes some of that disclosure is, if it were reasonably proximate versus absolutely proximate, I think that opens up a gray area. But, yeah, we go to great lengths to make sure we don’t end up putting that customer in that situation. We try really hard not to trick anybody or deceive anybody. So hopefully we’ll continue to succeed.
Perry Perfors: My suggestion for betterment of the position to the consumers would be to add information to price information. As we tried to do with the transparency of the site, we could also try to add information about the quality of the service and the contribution of the companies to sustainable growth, and things like that. It’s a challenge, and we will never reach the target, but we can try, and we will try.
Michele McDonald: I think one of the most difficult things I find when booking travel online is the inability to build an itinerary the way I want to build it. Sometimes I like to do that, sometimes I like to do the sort of slot-machine approach where, just give me what you’ve got and I’ll pick one. But sometimes I want to build it like: I want to be here at this time, and I want to be there at that time. And that’s a very, very difficult thing to do on a lot of sites.
I’m actually going to kind of blow my cover here. I think ITA software is one of the most brilliant inventions of our time. And I think most of you know it’s the shopping engine that really revolutionized airline shopping. And I loved it from Day One, because I am the queen of the illogical connect. I will go from New York to Dallas by way of Miami to save a couple of hundred — well, actually $1,800 it was.
But there again we have a situation where the airlines are just making it so doggone hard to buy their stuff. And it’s just, I don’t understand it, but they keep doing it.
I’d have to make an exception in the case of Southwest and Jet Blue, because when you buy a ticket on those guys, it may not actually be the lowest fare in the market at that given time, but you know you’re not being gouged. There’s a trust level there that just doesn’t exist with the other airlines.
Robert Mayer: Let me get into my fantasy life a little bit, toward the dark side, the paranoid part of my travel self. Our panelists may be able to respond, but this will be an opportunity for the people in the audience to respond, too. Here are a few things that freak me out.
One is, I have this notion that every time I go to a Web site, whether it be an airline site or an intermediary site or an aggregater site, and I say: I want to go from Salt Lake City to Dallas on such-and-such a date, and I want to see what’s available. But that information’s being kept. And it’s being kept on other consumers around the country, too. Because if I was running an airline and I had a plane with 100 seats and 50 were already sold, I’d want to know how much interest there was in those remaining 50 seats. And I’d probably start raising my prices, depending on the more interest that was shown by the people who were logging onto sites and asking about those particular dates.
So whenever I go to look for fares, I never give the dates. I’ll just pick the day before or the day after or a week earlier or a week after, when I’m just starting my shopping process. Because I feel that if I were running a business, I’d be collecting that information. So that’s one paranoia, that that information is being kept.
And the other paranoia that’s even more paranoiac, is that over time as you build up a relationship with a particular site, it could be Delta or it could be Orbitz or whatever, they start to get a sense of what you’re willing to pay and what class of travel you like to make. And in the long run, that there’ll be price discrimination based on that. That they won’t feel like they need to offer me the lowest price, I’ll still bite on the next lowest price. And someone else, my brother, might go to the same site and ask for the same fare, and he’s going to get a lower fare than me. So, anyone else share those fantasies?
Kevin Krone: Actually, I’m a pretty online paranoid person myself, so I don’t think either you and I are weirdos by ourselves, or maybe we’re not alone. But anyhow, I think that that situation you described could be very tempting to marketers. The good news is that it’s very expensive, very complex to do. And also back to Michele’s point which is, if you start doing that, ultimately you’re going to catch on. If a site starts doing that and monkeying with stuff, you’re going to catch on. There’s just too much other sources of information out there. So I think ultimately that gets tempered by the reality of the market.
Also, we would never do that. Again, we’re in the business of low fares, so we’re not in the business of trying to trick you into giving us five more bucks. We’ll take your five bucks, we don’t try to trick you into it.
Robert Mayer: It wouldn’t be illegal to do it, would it?
Brad Elbein: I don’t know the answer to that question. But I do want to say this, that the issue of online privacy is a huge problem. And it is one that the FTC has been studying for more years than I can remember. Of course, I can’t remember very many years. But if you read the newspapers, you know that there have been some huge problems recently. There have been many more problems that you all may not have even read about, about companies — Every company gathers information about their customers, and uses it in one legal way or another, but every now and then the information gets away from them or they misuse it.
And one of the big issues that we try to educate people on is what their rights are with respect to their personal information. And I would suggest to you that in the next year we’re going to see legislation to try to solve some of the problems that have come up recently. Because there are companies that use the information well. And there are legitimate companies that I can’t name publicly that use the information in a really abusive way. So privacy’s a big issue. Which means you should be a little bit paranoid. Maybe not completely paranoid.
Female Speaker: Can I ask a quick question? Brad, would you have an example of sites that do use that well, and — I always think of Amazon as a great example for a lot of functionality things — but I’m just wondering about how you feel about how they handle people’s privacy. And, Michele, I was wondering, too, if you could identify a site that let you build an itinerary the way that you want it.
Brad Elbein: There are sites — I wouldn’t want to comment on any particular site — but there are sites that I use as a consumer, that when I log on, they’ll say to me: We know you’re interested in zebras, and we’ve got this for you on zebras — I don’t care about zebras, personally — and that’s fine.
On the other hand, there are sites that collect my personal information and then sell it or give it away, under the guise of giving it to affiliates or whatever’s currently legal, or just selling information. And when I was a prosecutor, I prosecuted a couple of companies whose names you would know, because they allowed information, personal information that they got legally, to be disseminated.
FTC has had a couple of cases like that as well. And it’s a huge, huge problem. And most consumers are not aware that they can opt out of giving their information. Most consumers are not aware that there’s anything other than opting out.
In Europe I believe the standard is — Perry may know this — the standard, I believe, is you opt in if you want to allow your information to be used. In America, of course, we do opt out. Many consumers don’t know that they have that choice, so as a result they’re on lots of lists and their information gets out in a lot of different ways.
Robert Mayer: Kevin, you had something you wanted to say?
Kevin Krone: Well, let me just do a quick add-on here. Just to be absolutely clear, we are locked down on where your information goes. And so, for example, if we were going to team up with Hertz to do an offer to you — Hertz is one of our partners — we don’t just ship them a tape and say: Here’s 200,000 of our best customers; do whatever you want with it.
We get their offer, and either we send it out ourselves, or we get a mailing house or something to facilitate it. But Hertz would never get your data. And then the mailing house is under contract to destroy the data once it’s been sent.
So we’re very, very respectful of people’s personal information, and again, that’s one area where I’m extremely paranoid myself, so as long as I’m on guard there, we’ll continue to protect that data vigorously.
Michele McDonald: I have to point out that it’s somewhat ironic that the biggest violation of privacy policies in the last few years has been when the government demanded information from the airlines on passengers who flew at a particular time. Be that as it may. I think the government should get out of government.
But as to the question of sites that are a little bit more user-friendly, Southwest and Jet Blue will allow you to build an itinerary the way you want to build it. All the flights are there, they’re all listed; there’s no mystery.
I’ve had a couple of strange experiences in booking travel for myself, where I always use Brian’s [Barth] SideStep. And it will show me things that are on Orbitz that aren’t on other things. So I check things out on Orbitz, and then being that I do this for a living, I go check out what’s on the airline’s proprietary site. And in one case, the airline was trying to sell me a trip that had like three changes of planes. And Orbitz, I found that the airline actually had a single plane flight that it wasn’t offering on its own site. And I called up the airline and I said, “What are you guys doing here? You’re not selling this single-plane service.” And he said, “Well, Orbitz has ITA software and we don’t.” And that kind of blew my mind.
In another case, I tried to find a fare — ironically, this is an airline that is now offering a low-fare guarantee — and I tried to reconstruct an itinerary on, well, I’ll say it: American Airlines, AA.com. I was trying to reconstruct the itinerary for this trip on AA.com, because they give you a mileage bonus if you book online. I couldn’t do it. I could not get the same fare, I could not get the same itinerary, no matter what I did, and it made me crazy. And the fare difference, by the way, was something like $150. So American got my business, but they had to pay Orbitz to book me. So it’s their loss in the end.
Robert Mayer: Comments from the floor? I’ll throw one out. The last time I created my list of Top 10 problems in the online travel market, one was cancellation of hotel reservations. I found out, and we looked at this somewhat systematically, that a lot of sites, you lose a first night’s booking — which would be $100, $200 or some significant amount of money, $75 or whatever — if you cancel. That’s generally not the case with car rentals. It can be the case, depending on the kind of ticket that you purchase, in air travel.
Does anyone have a sense of what the state of play is there in cancellation for a hotel, reservations, if you don’t have the [INAUDIBLE] at Hotels.com?
Steve Hafner: You still get dinged.
Robert Mayer: You still get dinged. And that’s probably not because of a decision you’re making.
Steve Hafner: [INAUDIBLE].
Robert Mayer: So that’s one thing that may keep consumers offline, at least when it comes to hotel reservations. Other questions?
Kevin Krone: Can I ask Steve a question? Was that a site policy, or are you just following what the hotel is saying?
Steve Hafner: Sorry, I was speaking out of school from Kayak.com. I was just telling you what’s going on with the online agencies. For merchant model bookings, they will still hit you for a one-night booking penalty if you don’t cancel within their specified time line. And that time line will vary by property, depending on what they’ve negotiated.
So someone like Marriott could be 24 hours advance notice. Someone like Hilton could be 72 hours. It varies, literally, by property for each of the online agencies.
Michele McDonald: Isn’t that also true to a certain extent in the offline world? If you don’t cancel within a certain point in time, you’re going to get hit. So I’m not sure that that’s totally exclusive to —
Kevin Krone: Yes, if I don’t show up at the Melrose tonight by six o’clock, I’m still getting charged.
Steve Hafner: The window is narrower, though, in sort of the old traditional — but you’re right. It’s sort of a fact of the industry.
Robert Mayer: And sometimes there’s a cancellation fee regardless of when you cancel. And that’s generally not true offline.
John Hawks: Again, pointing up the challenge for a lot of online sites. The difference between the offline and the online worlds there, with a cancellation or any other problem with a reservation that comes up, is that with the offline world, you have someone sitting there locally, if it’s on the phone, even. You have someone locally, a neighbor, someone you’re going to see in the grocery store — in smaller towns I’m talking about, of course. You have someone that you can — if something goes wrong with that four-night hotel reservation and it’s a local agency, I can drive to the agency if I have to. If I’m upset enough. And you’re going to be able, if you’re a skilled agent, you’re going to be able to talk me down off the ledge and say: “Here’s the rule. I know you should have known this before. This is what happened.”
And I think that is honestly a big challenge for the online sites that want to go beyond commodity booking with air, car and hotel. I think it’s a huge challenge, and we may be sitting here next year celebrating the success of someone who’s done that, but I see that as a huge hurdle for the online sites, beyond the commodity pricing, because you don’t have that local presence.
Someone said it in an earlier panel. A lot of consumers just want someone to talk to them. They want that personal contact. And, again, even though the rules may be a little different, I think a bigger difference between the two worlds is that there’s not anyone on the online end of things who is going to be sitting there holding your hand, telling you: “Here’s how you screwed up, and we’ll do better next time.”
Robert Mayer: [INAUDIBLE].
Donna Rosato: Donna Rosato from Money Magazine. I have a question for Kevin, since you represent the supplier side. I’m just curious, as we were talking about the search engines earlier, what is, from the supplier point of view, the philosophy about making yourself available in the search engines? I know you speak for Southwest.
I assume that the Ding service deals will not be, if you went on SideStep, you wouldn’t be able to search that and find that information. But what’s your philosophy about being available for the search engines.
Kevin Krone: Of course, I can only speak for us, but we’ve taken a path that would probably make my marketing professors cringe, which is that instead of being on every shelf we possibly could, we’ve decided it was more important for us to invest in our own technology, invest in our site, and really focus on marketing ourselves that way and to complete the transactions. That will include the traditional search engines, the Googles, the Yahoos, those folks.
We don’t do anything to inhibit them from responding with Southwest Airlines in an appropriate situation. But, again, that’s just the Southwest Web site, not necessarily, “Here’s a fare, here’s a schedule.” The new generation of the meta-search folks, so far we’ve declined to participate with them. It boils down, to us, to basically two issues, which is cost and control.
The folks who’ve met with me have heard this lecture before, but basically I think we got a little preview of it in the last panel, which is, these guys are not the American Red Cross. They’re out here to make money. And that money’s going to come from somewhere, either the consumer’s pocket, our pocket. Both of them, in my opinion, are bad.
So we believe, and time will tell whether we’re right or not, but that we can do a great job of marketing it. We have a lot of innovation. We’re not standing still in terms of how to communicate to customers, and make sure that we’re giving that full disclosure, which will hopefully make them comfortable. So that’s the road we’ve taken. Over time, who knows what will happen. But right now, we’re very comfortable with that decision, and we’ll stick to that for as far as I can see.
Donna Rosato: Why be available in SideStep?
Kevin Krone: We’re not. There’s just a link, unless something’s changed in the last few hours. All it says, if they do a search that says “Oakland to L.A.,” all it says is “Southwest serves Oakland to L.A., click here to go to their site.”
So, okay, here comes the grilling, but anyhow — and we’re comfortable with that kind of a link. In other words, that I think is informational to the consumer, but we can still retain the way we want to market ourselves and our fares and our service and our brand to them in a way that we don’t feel we were being fairly represented through the other tools. Does that make sense?
Beatrice Tarka: I’m like the [INAUDIBLE] gorilla. My co-workers will be very glad that they feed me a lot of candies before I came here, so I can ask the very tough questions. So here it goes.
I do understand the concept of cost. And I think that that’s an issue that can be resolved between the supplier and the search engine and the customer. The only question is, every time that we grow and [INAUDIBLE], not all of them, some of them they are pretty collaborative and they say clearly: “Here’s our cost. Our cost structure is such. What can you do to diminish this cost structure?” And that’s sort of the start of a very constructive talk.
Now, where we are building a wall is out of the philosophy question that nobody can go around, because basically nobody knows what this difficult question is. Are you going to be able to say, “Listen, my cost is whatever, 40 cents, one dollar, two dollars. What can you do to bring that down? And how can we actually come across?” And then we can come back to you and tell you, “With our technology, this is a couple of things that we can do. Here’s the convention rate, here’s the cost issue. Let’s compare, and let’s find a solution.” So what we want to do here is, rather than saying, “Oh, this is a cost issue, we don’t know how to work with you,” is to start a concrete: How can we work with you so that we can provide a better service to customers?
They may not be aware, for every pair of cities that Southwest is flying, if a customer is looking, let’s say, I don’t know — I’m European; I come to the U.S. and the first time that I came here five years ago, I had no clue about Southwest. Because your marketing money spent over here in the U.S. is not spent in Europe. And I didn’t have any idea that you are flying between certain city pairs. And if I was looking for certain city pairs, I may have gone to Expedia, I may have gone to Orbitz. But I wouldn’t even think of going to Southwest, because I didn’t know about it.
So there is a value added in propagating your message to certain type of customers. The cost issue that you have mentioned is something that could be resolved if we just simply had the notion of what this cost is. And I’m not certain that every airline can actually pinpoint the exact cost of their inquiring.
Kevin Krone: First of all, I got lost in your accent there for the first few minutes. It’s delightful to hear you speak. But the problem here ultimately at the end of the day is, you’re always going to be additive in cost. In other words, you’re marketing for me to drive a transaction to my Web site. I know what the cost is on my Web site. So now if I back up and then pay you, I’m adding cost, not reducing cost.
The other thing is, we have been extremely focused over time, since our inception, on wringing every penny of cost we can out. So it kind of goes back to the economics of it, is you’d have a low hurdle to jump over — or high hurdle, depending on how you think about it. In other words, our costs are extremely low. It costs us about a buck for a Web booking, and it goes up steeply from there. Ultimately, though, if I’m adding cost to the situation, I’m being unfaithful to our Southwest Airlines customers. And I can’t do that.
So I know this isn’t, I know you didn’t intend for us to negotiate here, but that’s the battle that everyone’s facing when they come to us with these ideas, is our costs are extremely low. And the way I’m going to lower my costs is not by going to an intermediary which adds costs, but by focusing on volume through this channel, and drive my costs even lower that way.
So I think, unfortunately, that leads us to really focus on the path we’re on, which is, I think that’s the problem with us fundamentally. Other airlines, it’s a much different scenario. Their transaction costs, because of the nature of their distribution channels, are much higher. So I’m sure they are very excited about seeing you come in their door. But ours would be, it’s adding cost, not reducing cost is our fear. That’s what we believe.
Neil Bainton: Isn’t it also the case — Neil Bainton from FareCompare — that Southwest doesn’t want to be put in a matrix, doesn’t want to be compared?
Kevin Krone: I’ve heard that accusation. If that’s true, why would we — there’s nothing we’re hiding here. Why would we come up with Ding if we were hiding something? Why would we come up with a calendar which shows you what our fares are? It’s the contrary to that.
We are aggressive in saying: Look at our fares. Because we are the low-fare airline, and we’re proud of what we do, and we’re proud of offering those low fares. It’s not two seats on every flight, which is deceptive. It’s a lot of seats. There’s 1,500 seats sometimes at deep discounts. So nothing could be further from the truth that we’re hiding anything.
Neil Bainton: And I didn’t mean to say that, nor did I mean it as an accusation. I think it’s a smart marketing strategy, which says that you have everyday low pricing, so consumers don’t have to go all over the world. They can just go to Southwest and they know they’re going to get a fair price. It’s been, I believe, the strategy — or not?
Kevin Krone: Well, yeah, not — in other words, we’re not avoiding another site, because that by definition drives volume to our site. It does, but that’s not the reason behind it. The reason behind it is, if we’re not careful, if we’re not diligent with our distribution and how we manage it, then we are in a situation where all of a sudden the costs can go up.
Example: 1994, the CRSs [computer reservation systems] were carrying us free of charge in their system. Coincidentally, all three of them owned by airlines who were competitors to Southwest decided it was time for them to quit carrying us for free. Immediately, overnight, if we would have participated, our costs would have risen by $125 million. That was in a year we made $140 million. So that’s just, we can’t do that to our customers and still offer low fares and make a profit. So that’s the trick, is offering the low fare and also doing it profitably.
So what I’m saying here, to make a long story short, if we are careless — because distribution could be free. You could say “I’ll do this for free.” You could say “I’ll even pay you.” But that gravy train will end. There is no free lunch. We had a huge amount of business exposed in that 1994 CRS issue, of millions of millions of bucks. Travel agencies at the time were, I think, 60% of our business. So immediately 40% was exposed in that one move. We can’t do that either.
So we’ve got to be careful of the business. We’ve got to make sure we mind and control our costs. And then satisfy the customers as well. But we invest a lot to make sure that, by not being on those shelves, we still get to give you some information and hopefully earn your business.
Male Speaker: I’m actually not going to ask you about being included in a meta-search engine or not. You’ve made your statement quietly, and [INAUDIBLE] as well. I’m more interested in your Ding program. It’s rare to see an airline innovate the way you guys do it on the Web site. The fares that you show there, are they available for purchase for the general public, so they show up in your core search results as well? Because I think the press release I read was a little bit different.
Kevin Krone: They do not show up in the core search. So you have to have Ding that’s, in essence, a secret backdoor into those fares. Did you read differently? Did it sound like –?
Male Speaker: That’s what I read in the press release, that they were the fresh bait that [TALKOVER].
Kevin Krone: Yes.