I always seem to try and understand the world through my vocation.
When I read the paper, the internet, trade magazines, blogs, books or other sources of information, I subconsciously apply a careers worth of learning or everything I know in order to try and understand the issue. I guess it means trying to understand things through my philosophy. This also allows me to look at what our company does by the way others look at things and apply non procurement based logic to what we do.
When I was reading that airlines did not want to unbundle their ticket prices for consumers it simply indicated to me; that they’re hiding something. Prices have not always been bundled. As an example, original technology models were based predominantly on hardware prices. This was when companies sold huge mainframes. As technology evolved to microprocessors ever more quickly along a Moore’s law curve, hardware prices dropped through the floor. This evolution caused technology companies to find ways to stop their revenue erosion. As such companies began to focus on increasing the services portion of their contracts. One way to do this was through solution bundles. Solution bundles were a hard sell and made it more difficult for customers to understand what the total cost of a product or solution was. Today many of the historical major hardware company’s services revenue are higher than their hardware revenue.
From a procurement perspective, the way one attacks this is through a detailed specification that outlines all the components, commodities etc. that make up the product or service being bid on.
Let’s get back to the airline ticket. Why don’t the airlines want to unbundle their ticket pricing. It’s simple. It creates too many questions. Questions like why is airlines A’s airport costs higher than airline B’s? Why am I paying more for Bags at airline A versus airline B? Shouldn’t federal security charges be same for airline A versus airline B? What are flight segment taxes?
So why don’t the airlines want to publicly unbundle their ticket prices. The simple answer is because it will cost them money. Just the same as the 2nd bag costs you and the food on the flight costs you and the pillow costs you and the movie costs you. Here’s to full cost disclosure.
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