Cost-shifting -- the
transferring of certain expenses to business partners and customers
-- is quite in vogue in the travel industry these days. In a recent
high-profile attempt to shift costs, Northwest Airlines
demonstrated the key difference between cost-cutting and
The former can be
done unilaterally, but the latter requires two parties, the shifter
and the shiftee. If the shiftee refuses the gift of added expense,
the effort fails.
It would seem to be
stating the obvious to say that there are certain costs suppliers
cant shift unless a second party is willing to pick them up, but
the travel industry has provided a curious exception:
Northwest among them, have demonstrated that a company always has
the option of shifting costs from second parties to
Though no one
believes it was done by design, these legacy airlines performed
remarkable sleight-of-hand by first shifting distribution costs to
themselves (from travel agent commissions to their own call
centers) and then, after agents habituated the public to accept
service fees, shifting their call-center costs back to consumers
with a new $5 fee.
So, instead of
paying for bookings, the airlines are now being paid to take them.
Who says the airlines lack imagination?
This will only
work, of course, as long as the public doesnt stop to consider that
agents actually perform a service for their fee -- they shop for
fares and options among several airlines -- while airlines merely
perform a rote reading of their own current inventory and
cost-shifting by airlines makes headlines at Travel Weekly,
cost-shifting is rampant in the industry in a thousand smaller
ways. It doesnt always happen directly and transparently, as with
Northwests very visible fees, but can take vastly subtler forms
when people in the supply chain try to push their costs onto
For example, I
recently was on vacation in Australia and took a one-day tour of
some natural attractions that were booked as part of my package. My
guide was the owner of a small company that provides local
When he found out I
was in the industry, he expressed concern about a cost shift that
was affecting his business.
The guide said that
his customer pipeline used to begin with a travel agent abroad who
sold an international wholesalers package to Australia.
package was assembled and coordinated by a local Australian inbound
operator, who, in putting together the package, contracted with him
to deliver the local tour.
But now wholesalers
are trying to cut out the inbound operator by dealing directly with
suppliers like me, he said.
arent good for him. In their attempt to retain their attractiveness
to wholesalers, the inbound operators are trying to lower their
prices -- by shifting cost to him.
They ask him to eat
the difference between their previous prices and their more
attractive lower prices.
He noted that he
avoids this headache with wholesalers like Swain Australia Tours,
which still maintains its own inbound operations in
If, as an industry,
we have cut as close to the bone as we can and have begun to look
at cost-shifting as a viable alternative to further cuts, the
airline and tour operator efforts mentioned above may provide
guidelines of sorts.
may be better candidates to receive a cost shift than industry
Second, success in
cost-shifting may rest on whether the vowel following the sh is
perceived to be an i or an a.
When the equation
changes from the shifter and shiftee to the shafter and the
shafted, its safe to assume that failure is imminent.