Welcome back from your Fourth of
July holiday. You watched fireworks. You overate. You got
sunburned. You counted our nations blessings. You were on vacation,
your heart light. But today, back to work. Your assignment: Figure
out why the travel industry works so hard to restrict free
Not the government,
mind you, but the industry itself.
principles of capitalism are not enshrined in our Constitution,
that document gives us incredible latitude to experiment with
business models and even, it turns out, work against our best
long-term interests, if were so inclined.
The industry, in
ways large and small, has embraced the opportunity to indulge in
futile, if not self-defeating, activity.
The activity is
inspired by fear. And the biggest perceived threat to both
suppliers and small distributors is the emergence of large
Every time that
mom-and-pop travel agents shop at Home Depot, they know the twin
feelings of pleasure and guilt as they marvel at their savings and
recognize that their shopping preferences helped put their former
neighbor in the strip mall, the small hardware store, out of
and tour operators feel a bit of a chill as they walk the aisles.
They look on the shelves and think about the paint manufacturers
and toolmakers who were wrestled to the ground and told exactly how
to package their products and how much they could charge for the
honor of selling through Home Depot.
In travel, its the
online intermediaries who are perceived to be the threat. Travel
suppliers have come up with two main strategies to defend
themselves against the rising power of large distributors, and
small distributors have rushed to support them in their
The first strategy
is the concept of the level playing field that restricts a
distributors ability to lower prices. Not only is this
anti-capitalist, its anti-Darwinian.
have not evolved equally. Some have figured out how to create
efficiencies that others have not figured out, and hoped to enrich
themselves by passing along some savings to consumers.
Under the banner of
brand protection, some suppliers are saying, No, you may not give
away your own money as an enticement for people to buy from you.
That money once belonged to us. Passing along efficiencies will not
The other strategy
to prevent consolidated power among distributors is to try to
manipulate access to preferred pricing and override levels so that
large distributors -- the ones that sell them the best -are not
only not incented, theyre disadvantaged.
to its credit, has not issued level-playing-field rules, but has
done something equally confounding -- it has taken away its best
pricing, the iExcel rate, from its best producers, notable among
them Travelocity, Expedia and National Leisure Group. (iExcel
apparently is shorthand for I excel at not selling Princess cruises
in high enough volume.)
Ironically, NLG can
access iExcel rates for its wholly-owned home-agent brands,
CruiseOne and Cruises Inc., but not for its higher volume
Travelocity and Expedia should rent studio apartments near their
corporate headquarters, install a home agent in each and redirect
all their Princess business to these subsidiaries.
All of these
strategies are designed to fragment distribution. That may be a
legitimate long-term goal, but if a by-product of the strategy is
that market efficiencies must be suppressed, it will
And the brand
protection argument sounds logical at first, but doesnt really
stand up to inspection. If a brand wants to maintain a certain
price level in a marketplace where efficiencies bring prices down,
the company can always just raise the price.
That is, of course,
unless a competitor decides to leave the price for a similar
product just where it is. Then youve got a competitive situation
that brings to bear all the positive forces of capitalism, the ones
that result in improved products, lower prices, and, in all
likelihood, the expansion of the flow of dollars into the travel
industry as a whole.