Why do airlines offer rescue fares ?

[davidjohnson6]

When a commercial airlines closes down, it's rivals usually offer rescue fares (i.e. relatively cheap fare plus Govt taxes) for those who had purchased tickets for the next week or two on the now closed airline.

Often the airline that closed had been in trouble, and its reputation had been poor for some time. Premium customers, especially flying on business or through a travel agency would have been aware or at least likely warned about the risk of flying with the weaker airline and may well have chosen an alternate carrier to ensure reliability of transport. Thus, one expects that just before bankruptcy, an airline without a monopoly on a route is probably carrying mainly passengers more interested in low fares than premium service.

On a route for a city pair where there were previously 2 airlines (one strong, and one now bankrupt), why does the remaining strong airline offer rescue fares at all ? They now have a monopoly on the city pair, they are likely already carrying most of the profitable premium passengers, and their brand name is probably well known to the people with the now worthless tickets.

Further, if passengers considering booking a flight on a near-bankrupt airline use a credit card and expect the remaining strong airline to offer a rescue fare, passengers persist in booking with the cheaper and weaker airline in the full knowledge that the other strong airline will provide an effective safety net if and when bankruptcy occurs. Thus, we end up with the weaker airline's ticketing revenues being indirectly subsidised by its stronger rivals.

I don't buy the argument that it's a chance to get passengers on the weak airline to try the brand of the stronger airline - that brand is likely already well known in the market. Furthermore, commercial airlines do not claim to be charities and general consumer welfare is rarely high on their priority list. Some of the now stranded passengers will often pay handsomely for transport on the rival airline - i.e. a chance to bring in some big bucks.

In the absence of Govt / CAA intervention, particularly where the surviving airline now has a monopoly on a city pair, why offer those rescue fares at all ?

[Tableview]

The fact that Ryanair offers 'rescue fares' rules out the possibility that it's a gesture of decency and kindness, they use it as an opportunity to gloat over the misfortune of others and they obtain the maximum mileage from it.

I would suspect, but I don't know, that 'rescue fares' are subsidised by the CAA/ATOL in the case of UK originating passengers, as they have an obligation to assist stranded passengers, and that the difference between the advertised 'rescue fare' and the seat value is picked up by that authority or by insurers.

[Capot]

Airline seats are a perishable commodity. "Rescue fare" passengers would fill otherwise empty seats. If there were no empty seats the airline would not offer the fares. It's just marketing, and nothing wrong with that.

But it's not altruistic, unless and until people who would pay more are turned away.

For UK residents whose return flight is an element of a package and covered by the ATOL bond, it would be a different situation.

[WHBM]

a) It gets them free advertising by the mass media, who fall for it and quote their press release and mention the carriers' name. This in itself is a financially worthwhile reason. The airline's PR department will be ramming it down the throats of every media contact they have.

b) People who have been burned by their carrier going bust are likely to be exceptionally aggrieved and turned off another carrier who quotes way-high fares and is seen to be gloating or benefiting from their personal misfortune. Even Michael O'Leary wouldn't be silly enough to do this.

[ExXB]

It's actually much simpler than you think. The European Commission (DG-TREN) has expressed concern than airline contracts are too rigid and provide little protection to consumers when an airline ceases service.

Because they don't want the EC to impose obligations on other airlines to accept stranded passengers, either FOC or at an arbitrary level, the airline organisations have counselled their members to offer rescue fares to cover these situations.

As long as these fares remain 'reasonable' the EC will probably stay out of it. But if they detect too much greed (I.e. the law of supply and demand) that will change..

Isn't it nice that the Commission feels it appropriate to interfere with basic economic laws.

[Tableview]

Airline seats are a perishable commodity. "Rescue fare" passengers would fill otherwise empty seats.

Almost by definition, 'rescue fares' are sold at the last minute, and the efficiency of most yield management systems is such that there are no, or only a few, empty seats. These are usually saved for late booking 'must travel' passengers and thus attract higher fares. So being able to give away such seats at low fares rather than let them go empty is not a realistic suggestion.

[Capot]

Tableview, it would have been good if you had read the next sentence.

If there were no empty seats the airline would not offer the fares.


Obviously, if the airline could get the higher revenue, it would. Then there would be no empty seats. But if it cannot get the higher revenue there will be empty seats. And it's better to fill them at a low price than close the doors on empty seats.

Capisce?

[CelticRambler]

Stranded passengers, even in the midst of their distress, will still make a decision on how to get home based on a combination of factors including time, cost and (in)convenience. Some of them will have already maxed out on their credit cards and simply not have enough funds to pay a "normal" last-minute fare up front, even if they can later claim it on their insurance. Others will, as you point out, have chosen the now defunct airline as the cheapest option for their trip, but it may not have been the most convenient departure/arrival combination at the time of booking so an airline operating a different route might have the advantage if there is no cost difference. In the changed environment, the remaining airlines must compete on new terms.

[Tableview]

Yes Capot I can read, I did read the entire posting, and I probably know more about RM than you do, so wind your neck in.

The fact that there are empty seats shortly prior to departure does not necessarily mean that the airline will sell them off cheaply just to fill them. Think through the implications of that particular modus operandi. I stand by my original statement, whether you agree or not. Thanks for the contribution though.

[Capot]

and I probably know more about RM than you do


It's the word "probably" that I like. I wonder if you really do. But I won't get excited about it.

[The SSK]

ExXB: The European Commission (DG-TREN)

DG MOVE. They don't do 'E' any more.