The Problem with Unbundled Air Fares

Normally I would welcome a move like the recent one by the Directorate General of Civil Aviation (DGCA) that allows airlines to decrease baggage limit and allows them to charge for seat allocation. While I’m a fan of checking in early and getting in a seat towards the front of the flight (I usually don’t carry much luggage on my business trips), under normal circumstances I wouldn’t mind the extra charge as I would believe it would be offset by a corresponding decrease in the base fare.

However, I have a problem. I don’t pay for most of my flights – I charge them to my client. And this is true of all business travelers – who charge it to either their own or to some other company. And when you want to charge your air fare to someone else, one nice bundled fare makes sense. For example (especially since I charge my flights to my client) I would be embarrassed to add line items in my invoice to ask for reimbursements of the Rs. 200 I paid for an aisle seat, or the Rs. 160 I paid for the sandwich. A nice bundled fare would spare me of all such embarrassment.

Which probably explains why most airlines that primarily depend on business travelers for their business don’t unbundle their fares – that their baggage allocations remain high, that they give free food on board and they don’t charge you extra for lounge access (instead using your loyalty tier to give that to you). Business travelers, as I explained above, don’t like unbundled fares.

Which makes it intriguing that Jet Airways, which prides itself as being a “full service carrier” has decided to cut baggage limits and charge for seat allocation (they continue to not charge for food, though). Perhaps they have recognized that a large number of business travelers have already migrated to the so-called low-cost Indigo (it’s impossible for Indigo to have a 30% market share if they don’t get any business travelers at all), because of which Indian business travelers may not actually mind the unbundling.

Currently, Indigo flights have a “corporate program”, where the price of your sandwich and drink is bundled into the price of the ticket. I normally book my tickets on Cleartrip, so have never been eligible for this, but I can see why this program is popular – it prevents corporates from adding petty line items such as sandwiches to their invoices. On a similar note, I predict that soon all airlines will have a “corporate program” where the price of the allocated seat and a certain amount of baggage (over and above the standard 15kg) will be ¬†bundled into the base price of the ticket. Now that I charge my flights to a client, I hope this happens soon.

Penny wise pound foolish at PSUs

A couple of months back, an uncle who works for a PSU in a reasonably senior engineering role, had to go to Calcutta on work. Thanks to his late arrival from Calcutta, we had to postpone a party that had been planned for a weekend. When I asked about his late arrival, I was told that his train had been delayed. It was then that it struck me – that a lot of PSU officers still do business trips by train!

The logic completely defies me. An airconditioned train ticket (at my uncle’s grade, I don’t think they would send him by cattle class) from Bangalore to Calcutta costs around Rs. 2000, and it takes about thirty six hours. A flight, on the other hand, costs not more than Rs. 7000 (assuming you’re not booking at the last minute), and takes about three hours. What amazes me is that the PSU that employs my uncle values his time at less than (7000-2000)/(36-3) ¬†~= Rs. 150 per hour! Ok even if you assume that the train journey had two nights when he would have been unproductive (and assuming that he’s a superman and so doesn’t need to rest and recover from a long journey), his employer values his one full day of work at Rs. 5000!

While this valuation might be consistent with my uncle’s salary (I’m only guessing given his experience and position; I haven’t asked), I think it’s still a stupid choice to make on behalf of the PSU. I was reading an op-ed by Mihir S Sharma in this morning’s Business Standard, where he talks about our warped sense of “austerity”, and was wondering if this decision to send my uncle to Calcutta by train was a measure in a similar direction!

Austerity means cutting down or limiting wasteful expenditure. It does NOT mean cutting down tangible expenditure in favour of the intangible (my uncle’s lost working time is an intangible, since he gets paid monthly; so is his reduced efficiency on the day immediately after his journey). Unfortunately some of the PSUs have not recognized this and still stick to some age-old “policies” regarding travel and expenditures.

My wife, who works for Toyota, informs me that a certain number of cars produced every day are “specially made for the government”. When I ask her what is so special about a sarkari car (apart from that rhino-horn like thing on the bonnet) she tells me that they are not supposed to have air conditioning! Given that air conditioning is a default in most cars nowadays, this “no air conditioning” is a special request that the government has to make to the manufacturers, so I don’t think it makes any tangible difference in the cost of the car. From my experience with my Zen, driving with and without air conditioning (I live in Bangalore, so I don’t need it at all times), I know that air conditioning hardly makes much of a difference to the mileage of the car. So overall in terms of cost, there is little the government saves by not having air conditioning in the car.

Now think of the babu in Delhi, where summer temperatures go well into the forties, and which is so dusty at all times of the year. Think of the possible increase in his efficiency if he were to travel in an air conditioned car. That is an intangible and the government will have none of it. It is all about austerity, you know. Penny wise, pound foolish.

PS: The recent focus on corruption has done more harm than good. Afraid of “being pulled up” by the CAG or any similar authority, a number of PSUs have gone into policy paralysis, and are simply not taking decisions, lest they are accused of being corrupt. The economic loss (again intangible) is humongous compared to the amounts these people might have possible swindled had they made the decisions! We never learn.