Arnie WeissmannCost-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 cost-shifting.

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:

Some airlines, Northwest among them, have demonstrated that a company always has the option of shifting costs from second parties to itself.

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 prices.

Although 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 others.

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 tours.

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.

Usually, the 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.

The consequences 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 Australia.

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.

First, consumers may be better candidates to receive a cost shift than industry partners.

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.


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