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Are Indexed Airfares Deceptive or a Deal?

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How’d you like your next air ticket to include a bet on the price of oil? That’s an idea that Allegiant floated in a recent filing with the Department of Transportation. You buy a ticket at a price posted for the day you buy. Then, if the price of oil goes up between the day you buy and the day you fly, you pay more; if the price drops, you pay less. Oddly enough, it could work, but I see plenty of ways it could go wrong.

Here’s what Allegiant had to say: “Allegiant is considering a new pricing option for use on its website: when making a purchase, consumers would be able to choose between a traditional ‘locked in’ fare that would not fluctuate, and a lower fare that could change before the date of travel. That lower fare could be reduced further or could increase (up to a set maximum that would be clearly disclosed) depending on changes in fuel price between the booking and travel dates. This would be a non-compulsory alternative for consumers; it would provide them another option for potential substantial savings on their trip costs and would be clearly disclosed and explained prior to any purchase.” {{{SmarterBuddy|align=left}}}

Sound logical? Maybe, but here are two potential pitfalls for you, as the customer of any airline that tries this system:

  • An airline could feature the flexible fare in all its price promotions, while pegging the “traditional” fare at a level high enough to discourage you from taking that option.
  • Allegiant says nothing about how it would assess changes in fuel prices. Possibly, once an airline has your money, it could claim that fuel prices went up the next day and you’d have to pay more. Or it could claim that its fuel prices are stuck at a high level despite a drop in the price of crude.

I suspect that quite a few writers will immediately decry this proposal as another scam. And it could turn out to be a scam, but not necessarily. Provided the mechanism for adjusting the price was fully transparent to consumers—perhaps based on widely published figures on the cost of a barrel of oil—travelers would have protection against hidden price manipulation. And a requirement that the airline actually sell tickets for immediate departure at the flexible fare, perhaps with a cushion of a few days, would eliminate much of the potential for deception.

Certainly, you can’t get away from the fact that airlines have to deal with fluctuating oil prices one way or another. And, one way or another, as a consumer, you’ll pay. Currently, airlines build some fuel price risk into current fares, and many of them get involved in elaborate hedging systems that sometimes result in higher costs rather than lower.

Unlike cruise lines, government rules prohibit airlines from assessing post-purchase fuel surcharges. Post-purchased fuel surcharges make a certain amount of sense for cruise lines, which must typically establish brochure list prices a year or more in advance. But with the typically shorter lead time in airline pricing, routine post-purchase surcharges would represent a huge opportunity for fleecing consumers.

But Allegiant’s proposal makes a certain amount of sense. Somebody has to take the risk of fluctuating fuel prices, and Allegiant says it would like to shift some of that risk to consumers—on the downside as well as the upside. On balance, I’d like to see Allegiant have a chance to at least test the idea in the real world marketplace. Clearly, any government sanctioned test would require some pretty firm ground rules, close observation, and a trigger mechanism to end the system if it proves unfavorable to consumers. But given appropriate supervision, a test might verify an idea that has long-term merit. My take: Give it a try.

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