By Josh Barro
The other day, I was on a flight that was supposed to have meal service. However, delays had led to the plane not being catered, and so the gate agent gave me a meal voucher, valid for up to $13 at the various restaurants in the terminal. I picked up a turkey sandwich and a candy bar; it being an airport, that purchase came to $12.74.
Now, imagine that the airline I was flying -- let’s call it MedicAirlines -- decided to cut future meal vouchers from $13 to $11.70. Naturally, some frequent travelers on MedicAirlines might start worrying that this would make it harder to acquire the foods they have become accustomed to.
MedicAirlines’ CEO, who happens to be named Barack Obama (no relation), is dismissive of these concerns. He insists that food vendors, not travelers, will absorb the cut -- if vendors want to continue taking the vouchers, they will have to continue providing the same $13 worth of food they did before.
Mr. Obama says repeatedly: “While we are cutting meal voucher expenditures, there is no cut to meal voucher benefits.”
MedicAirlines insists that there is plenty of room for airport concessions to become more efficient and sell meals at a profit for $11.70. It points to foreign countries where turkey sandwiches are just as good, or arguably better, and don’t cost anywhere near $10. In other words, $11.70 should be plenty for travelers to eat just as well as they do now on $13, if only the airport concessions sector would stop being so wasteful.
Now, maybe MedicAirlines is right that it has strong market power and can force many vendors to sell at a price that is 10 percent lower. But that won’t always be right.
Some vendors -- probably the ones selling the most desirable food -- will simply decline the vouchers, and MedicAirlines travelers will be left with fewer food options. Even if some vendor at every airport continues to take the vouchers, many MedicAirlines flyers will no longer be able to eat at their preferred restaurants.
The cut in meal reimbursement rates is especially concerning because there is a rival airline -- Medicaid Airways -- whose meal vouchers are only worth $8. These vouchers are notoriously difficult to redeem in exchange for desirable meals. At some airports, it is hard to find a restaurant that will accept these vouchers at all; those that do tend to have poor-quality food and long lines.
Until the cheaper vouchers are issued, we won’t know exactly how the cut will affect the travel experience. But travelers’ first instinct -- that an $11.70 voucher is worth less than a $13 voucher -- is likely to prove correct.
Read more breaking commentary from Bloomberg View at the Ticker.
-0- Aug/27/2012 16:21 GMT