Driving The Price To Zero

Peter G. Miller
OurBroker®

It must have seemed like a good idea at the time -- an idea that has a parallel in real estate.

In mid-January Delta Air Lines, the nation's third largest air service and a company that generated $194 million in profits in its most recent quarter, announced that it would add a $2 fee for each round-trip ticket NOT sold from its Internet site.

If you're an airline you want travelers to contact you directly. If folks buy online then an airline need not pay a travel agent nor underwrite traditional ticketing costs. Given tight margins and lots of tickets, you win either by getting $2 more for a round-trip ticket or by selling tickets online and cutting your costs -- but only if the public is willing to go along.

Consumers want an array of choices and an ability to compare prices -- that's why they use travel agents and online sites that feature many air carriers. And since tickets on a given flight may have a variety of prices, it pays to shop around.

If you're a travel agent -- in essence a ticket broker -- that $2 is not especially important. What counts is that if travelers buy directly from airlines, then you -- the travel agent -- need to reconsider your career plans. You're not selling tickets and thus you're not earning commissions. The value of your service is zero.

So what happened to surcharge idea? It was withdrawn in about two weeks. The public wouldn't buy it, travel agents -- not wishing to assist in their own demise -- would not support it, and competing airlines did not join in with surcharges of their own.

The surcharge experiment is an example of false and muddled online economics. Yes, it makes sense to drive consumers to your web site. Yes, there can be savings and profits for site owners. But such advantages cannot accrue without consumer benefits.

You see the same situation when looking at stock broker and banking sites. Smart stock brokers are doing enormous business online while online banking is a dud.

Here's why: Stock brokers offer discounts for online trading, while bankers offer their usual assortment of fees and charges to hold your money and earn interest on the float. Why bother with online banking if the benefits are not shared?

In terms of real estate we see parallel thinking. The Internet offers the promise of somewhat lower transaction costs if only consumers will throw away the benefit of choice and get rid of -- or reduce the role -- of those pesky folks who traditionally assist in such matters, realty brokers.

The public understands that competition and comparison shopping are good things. And the real estate industry -- if it's savvy -- will take the time and spend the dollars necessary to remind the public that without open competition consumer choice is an illusion.

Question Of The Week

Q We have a rental property in which there was an accidental kitchen fire caused by the tenants. The damage is substantial but our insurance will cover all repairs except for our deductible. Can we get the deductible back from the tenants?

A You are not the cause of the fire and you should be made whole. That said, this matter needs to be thought through with care.

First, what does your lease say? Is there a provision under which the tenants are responsible.

Second, are there state or local rules which relate to this issue? See a broker or attorney, as appropriate, for details.

Third, you say the fire was an accident and that insurance will cover virtually all costs. You can be certain that the tenants did not knowingly or purposefully set the fire.

The result of the fire is likely to be extensive repainting and repairs -- in effect, your property will be modernized and upgraded at little cost to you. It will be more valuable.

The view here -- which may not be shared by other owners or insurance companies -- works like this: You have a better property rising from the ashes and it didn't cost you much. If the tenants have a strong history of paying their rent and maintaining the property, it may be a reasonable investment to not make matters worse by seeking further compensation. After all, good tenants are hard to find and another fire is unlikely.

Weekly Resource

Want to know more about airline ticket costs and policies? Check out Rules of the Air for information you need to know.