Thanks to an email from an equity research analyst I have become aware of another airline's efforts in this retail battle. Below is a shot from the American Airlines site with a very common appliance store tactic of buy now pay later. In the case of American Airlines they are offering Fly Now Pay Later with six months interest free.
There are restrictions here. Firstly it applies to air only (ie the areas on directly under American's control). The consumer has to apply for an AA credit card, combining financing with credit card customer acquisition. Most outrageously if the amount is not paid in full within six months interest is accrued and back dated at a Mafia like level of 25.96%.
The execution and interest rate may be bordering of scandalous but I expect this to be the first of many appliance retailer like activities from travel suppliers and online agents. Even in these times of credit crunches there is just too much money in financing, extended warranties (insurance) and flexirent style products for margin pressured suppliers to resist the lure of appliance retailer practices. The BOOT will be tracking and posting on these as I see them. If you spot some let me know.
7 comments:
Dear Tim, I personally don't like "too easy" crediting. I do not like it from business point of view as it causes undesirable risks for te business. But I much more do not like it from my personal consumer point of view. The logic is very simple all the loss of unpaid credits is usually braught on fair consumers. In Russia, for example up to 30% of credits are not returned. And institutions put it all on those who pay everything. As a result our credit margins are enormous. If you take 10 year credit - you will have to return doubled amount.
I do not like the present world credit system when too many unnecessary credits are given too easy.
I agree that large scale amounts are necessary for economy development. If the volume is huge and should not be postponed it's definitely must be credited (mortgages, cars, mariages etc).
But I think that most of credits for a small amounts like CDplayer, TVset, Airline ticket, Vacations are defenitely not necessary and should not be given so easy.
When you apply for a large scale credit in a bank you pass credit history check, creditability check etc. When you buy airticket - cannot imagine the mechanism of thorough creditability check. For me it's really thread that someone unknown to me is not able to pay for airticket and take a credit. How bad must be his financial situation and why I should expect that it will not become even worse.
Another problem is that businesses start competing in credit conditions instead of product, distribution networks, customer service etc. They undergo themselves to higher and higher risks untill day X when everything crushes.
So I'd prefer to regulate the crediting somehow. I am not talking about total governmental control, but thresholds and particular goods and services limitations.
Well, it's may be a bit naive view on macroeconomy, but it will be interesting to listen what people think about this.
Interesting post Tim.
It's too bad that big businesses are still actively embracing the conventional wisdom that led to this economic crisis.
Chalk this up as more un-innovative thinking from the airlines.
It will be interesting to see how things turn out. The idea of Fly Now, Pay Later doesn't exactly work the same way as appliance would. May be that's why they pull in the credit card company to take the risk.
The main difference between travel and appliance is that in most cases, the appliance (and its novelty) lasts longer than the payment schedule. The travel, however, evaporates soon (if not immediately) after the last component is used.
When I grew up in Asia, my father had a very successful business selling appliances - and it really was more a financing business than retail.
The main reasons for success were twofold. First, this option allowed people to afford what they might not be able to if they had to pay lump sum. Second, there was a big incentive in keeping up the payment. They got used to the convenience of having the appliance, and would rather make monthly payments than going back to life without the appliance. They continue to see (and use) concrete evidence of their payment everyday.
For travel, as much as people love the experience, many wanted to forget as soon as possible how much they had to pay for it.
On the other hand, much of the value of travel is the anticipation of it. If we can engage people enough to get them to start making several small payment in advance for their vacations -- if we can reward them with each payment (even virtually) until they get to the goal -- the anticipation may make for an even better experience once they actually get to it. Plus it will all be paid for by then!
I know that this is totally against the mantra of instant gratification. However, with what people are learning in the recession, I am hearing a trend in a different direction. I recently heard similar news on US national morning news (NBC and ABC I think)-- many Americans are now turning to LayAway -- the practice of paying a little at a time for the things you want, and pick it up once it's all paid for. Some US chain stores in the US are now dusting off their LayAway program.
And this concept is nothing new to Asian temperament... at least not for Chinese and Thais.
Hmm... May be I discounted the idea of Fly Now/Pay Later too soon.
I've just seen an interesting article on Harvard Business School's research -- "Indulgence vs. Regret: Investing in Future Memories"
Link here:
http://hbswk.hbs.edu/item/6008.html
The article ended with this:
"So burn your to-do list and let's all go on vacation. And if you're in the business of travel marketing, think of ways to show us how we'll regret it 10 years from now if we don't."
So once we travel marketers succeed in showing that, the only thing left is to get a good collection agency, or find a bank who would take on the risk on our behalf.
so what no Orbitz Visa
Hi Tim - very interesting post. The fight for the discretionary dollar is definitely being fought between seemingly unrelated industries.
I am in the accommodation industry and believe that we are competing with the consumer fad of purchasing big screen Tv's!
If we are passionate about what we sell, we should believe in offering the consumer choice and making it easy for them to purchase. If this means packaging finance (partnering with a credit card company etc)then why not?
It is wrong and condescending to treat consumers as weak willed and unable to make decisions that is best for their circumstance.
As a travel industry, why should we undersell ourselves? The purchase of travel can give someone an experience that will endure at least as long as a big screen TV...
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