Wednesday, September 29, 2010

Canceled Flights and who should bear the Risk

Flying is risky. In September 2010 airBaltic (BT) canceled a number of routes while shifting to the winter schedule. Although it is common in the airlines industry to operate a thinner schedule for the winter period (October till March), this particular process was related to many unexpected changes. BT canceled flights where they already had sold tickets, including a large sales campaign which ended just days before the canceling announcements. This led to number of accusation of BT being unreliable and unfair to customers.

However, the story is not quite that simple. Namely, according the the BT's representative Janis Vanags, "flexibility" is necessary in order to keep the prices low. I would add another dimension here -- flexibility, i.e. ability to change schedule and cancel flights, also encourages BT to start flights to more risky destinations. These include low-demand, seasonal, or otherwise unknown locations, where the firm may be quite uncertain about the business results. To put it briefly -- BT is cheap, and reaches many destination, exactly because it is flexible.

You, as a customer, should understand it as a take-it-or-leave-it deal. You get a cheap flight to a weird destination. But be aware: this airline is re-scheduling/canceling more than you might expect. To put it in a different way: compared to "traditional" airlines, BT is shifting more of the operating risks to the customers. This helps it to keep the prices low and the network large. Is it good or bad for the customers? It depends. If you are price sensitive and don't mind changing your holiday plans by a day or two, then it is a good deal. If you are a business traveler booking your tickets just a few days before you fly, it is fine as well (the schedule changes are usually announced about a month in advance). If you are not flexible -- bad luck. Consider another airline if there is an affordable alternative nearby.

Can we conclude that last-minute changes in schedule are fine? Not quite. The problem is that customers may not aware of the actual risks. The majority of airlines are following their schedule closely long time in advance. BT seems to be somewhat free-riding on this perception of reliability. The best solution may be to make the customers aware of the related risks, given they are actually able to make use of this type of statistics.

Traveling long distances is a risky business. You either have to pay the insurance, or take the risk.