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Northwest Commits Corporate Suicide
Charles Leocha · August 30, 2004

Northwest Airlines recently announced a series of new fees for anyone not using its online booking sites. In typical airline method, it made what could be simple fees complex and onerous. Northwest is going to charge $5 to book a ticket over the telephone, $10 for anyone buying a ticket at the airport and $7.50 for anyone purchasing a ticket through an agency (and yes, there is more fine print).

This pronouncement by the Northwest hierarchy was met with immediate disbelief, scorn and howls of protest in the travel world.

Sabre and Worldspan, which handle many of Northwest's reservations, both claimed the new charges violate the sprit of their contracts. The networks announced immediate plans to make it more difficult for travel agents to view Northwest ticketing options, hence impairing their sale.

Travel agencies have also risen up in arms. Many have decided to stop selling Northwest tickets if the airline is going to charge them to sell something from which they don't even receive a commission.

AAA announced that the Northwest action was "worse than a fare increase." Its CEO noted, "Not only will they result in higher fares, but they penalize travelers and travel agents for using customer-friendly booking methods"

A chorus of travel commentators sang out that this move will eliminate easy fare comparisons and that there are no discernible customer benefit.

The travel industry response makes sense. Why sell someone's product with additional fees, when there are similar products to be sold without any additional fees? This is basic Economics 101.

Clearly, Northwest's grand poobahs are determined drive customers to their clunky, inefficient, isolated and "inferior" in-house Web sites using the stick of big fees rather than a carrot of discounts and value-added service.

It doesn't have to be this way.

Northwest could emulate the low-cost carriers. Northwest honchos claimed that they were doing exactly the same thing as Independence Air and jetBlue, which offer discounts of $10 and $6, respectively, for round-trip tickets purchased on their sites.

But, here is the rub. The low-cost airlines use "discounts." Everyone loves discounts. Discounts make us smile. Airlines that give us discounts are wonderful. Airlines like Northwest which charge us additional fees are avaricious commercial thugs.

The Northwest kingpins in addition to missing their Econ 101 classes seem to have missed Psychology 101, too. They never learned what most children in America know. Mary Poppins said it best: "A spoonful of sugar makes the medicine go down."

The other basic business lesson Northwest bigwigs seems to have missed is that "when you invent a better mousetrap, the world will beat a path to your door."

Hence, using fundamental common sense (sorely lacking in the airline industry), Northwest has two jobs. First, offer discounts and positive incentives for using the in-house Web sites. Second, make those in-house Web sites the easiest-to-use and most efficient systems.

In short, make customers want to come to your site for the discounts and then make them want to return because of the value-added, easy-to-use service.

If Northwest henchmen take that approach rather than using the baseball bat of big fees (that may end up striking out the very profits they claim to seek) I am sure they can save millions.

If there are additional costs associated with booking through the phone, at ticket offices and through agencies, Northwest Web specialists should work to make their low-cost alternative booking engine as customer-friendly and easy-to-use as possible and then offer discounts for its use.

Every ticket sold on the retail Internet means one less customer interface on phone or at the counter. Northwest saves by having customers voluntarily reducing their use of costly booking options. And since economies of scale apply, each additional booking on the in-house Internet site incurs a minimal cost.

On the travel agency side of the business, Northwest should offer incentives for agents to use their in-house booking system. These incentives are not only monetary, they should include making the in-house system even easier to use, more efficient and superior than Sabre or Worldspan.

Travel agents faced with a choice of escalating Sabre, Worldspan and other GDS fees or a significant savings for using the in-house Northwest trade Web system, will be researching on Sabre, Worldspan, et. al., and then booking on the Northwest system. With a hefty discount no travel agent would groan at simply changing booking screens.

In both the consumer and the agency worlds the carrot, the positive incentive and the spoonful of sugar work far better than the stick.

JetBlue and Independence Air as well many other lot-cost carriers seem to know that, but Northwest's MBAs seem clueless. At this rate, the only passengers booking Northwest flights will be those who have no alternative airline service or the uninformed.

Northwest's financially inept executives have just made their flights more of a hassle, more irritating and more costly than competing flights on any other airline serving the same routes.

It looks to me like a form of corporate suicide. It's a recipe for financial disaster.

Spirit Airlines, which has flights out of Detroit, must be licking their chops, getting ready for more passengers than ever.

If struggling Northwest treats their fare-paying passengers and their top agents with such a counterproductive management style, it is no wonder that labor relations at this airline have been in the toilet for so many years.

Charles Leocha is a commentator based in Boston.