A common complaint about the travel industry is that pricing is unfair. The guy in the seat next to you on the plane may have paid a hundred dollars less or a two hundred dollars more than you did. Airlines are well known to monkey with prices on a given route — and even on a given flight — very aggressively forcing travelers (particularly leisure travelers) to diligently watch prices. Indeed, this blog’s most popular post over the past year has been Gady’s post on why airfares are cheaper on Tuesdays.
These pricing mechanisms are broadly lumped together as revenue management systems. Airlines are not alone in this racket. Hotels and car rental firms have also long been practitioners of revenue management. See, for example, the well-known Interfaces article on how revenue management “saved” National Car Rental (Jan/Feb 1997). But it is hard to get around the fact that customers don’t particularly like them. Sure, a traveler may occasionally score a great bargain on an itinerary when the stars align but more often than not, they have to spend a lot of time and effort trying to find the best deal.
This obviously creates a business opportunity for firms that simplify the process of finding a good price. Travel websites like Kayak would be an example but these sites offer just a snap shot. That is, they can tell you the best current price but they cannot guarantee a better price in the future. Bing Travel’s Price Predictor feature can estimate whether prices will go up or down but you would still have to come back at the right moment to get the better price.
That gets us to AutoSlash, a service featured in a recent New York Times article (A Rate Sleuth Making Rental Car Companies Squirm, Feb 18). Here’s how it works:
A little online booking engine called AutoSlash, however, offers the following promise: Book free on its site, and a couple of times a day until your travel date it will search for coupons or lower rates. If it succeeds, it rebooks you automatically. AutoSlash claims success 85 percent of the time, a statistic born out by my own experience using it for all of my own rentals.
A couple of things are worth noting here. First, not all car rental companies are allowing AutoSlash to make reservations. National and Avis do not, but Hertz, Dollar, and Thrifty do. Second, it is a free service for consumers; AutoSlash makes it money from Travelocity, who pays them a commission for booking through their system.
The interesting part of this is that it undermines one of the basis for revenue management. Time fences — letting rates depend on how far out a customer books — are a pretty integral part of these systems. Similarly coupons hidden in some corner of the web are a way separating devout bargain hunters from time-pressed travelers of greater means. AutoSlash thus makes segmentation much harder and lets everyone get the bargain rate.
As the article points out, this is partly do to the car rental industries own rules. Fares are only collected after the service is provided (as opposed to airlines charging upfront) and there is essentially no penalty for being a no show (as opposed to hotels). (Note that there has been talk in the past of imposing no show fees in the industry.)
There are some steps that firms could impose. For example, they could ask for your license number when you make your reservation and then not allow a second reservation for the same license number on the same date and location at a better rate. Alternatively, they could demand upfront deposits (if not full upfront payments) that are forfeited if the reservation is cancelled.
The difficulty in pulling these off is not the technology but competition. If Hertz tried imposing these changes without also cutting prices a lot, it would lose business to Avis and National. There is also the complication of business travelers. Executives are the bread and butter for many firms and their plans are subject to many changes. They would balk at hard limits. That suggests an alternative may be to have rules that vary significantly with the rate that is booked.
So will the industry change? It might well happen. There has been considerable consolidation in the industry in recent years so it just might.
