A few weeks ago, WOW Air, an Icelandic budget airline, announced that they would be flying Boston-Reykjavik at an introductory fare of $99. Despite the growth of budget airlines in both Europe and the US, WOW is apparently the first airline to try to make a margin on trans-Atlantic routes. WOW argues that smaller planes (made possible by Iceland’s mid-Atlantic location), limited service and high aircraft utilization will make the route profitable. On WOW, passengers can book a one way flight to mainland Europe for around $200, half of the roughly $400 going rate for a connecting flight on traditional air carriers.
One of the obvious consequences of this route announcement will be a further growth of consumers who cobble together a series of low-cost tickets to undercut published fares on the network airlines, (now with WOW making it to Europe and beyond). The Wall Street Journal wrote about this trend a few months ago, quoting a traveler who called this practice “virtual interlining”—basically “building connections airlines don’t want constructed”.
Virtual Interlining works like this: money-savvy buyers buy individual flight legs separately and link itineraries together to undercut published rates on a route which are expensive when bought as a bundle. For example, a traveler going from Kansas City to Paris could either buy a $1300 ticket (on American Airlines for the random dates I searched). Or, they could buy two separate tickets: a $174 ticket on Southwest and a $228 ticket on WOW (and spend their $800 savings on a great Burgundy when they get to France).
The WSJ writes that the carriers have to tolerate the practice, but suspect that it’s not going to catch on. And, besides, there’s not much they can do about it. “Carriers discourage the practice, but say it isn’t a serious threat to their pricing strategies because most fliers won’t go to the trouble. ‘If you see it and you can book it, you can take it,’ said US Airways spokesman John McDonald”.
NOW there’s a new interesting wrinkle to all of this: Virtual Interlining is a hassle, mainly because baggage doesn’t transfer between airlines without interline agreements. But, I recently read with great interest Gatwick Airport’s new “Gatwick Connect” baggage service, which is designed to allow passengers traveling on unrelated tickets to transfer checked bags easily. It’s a fascinating development designed to facilitate virtual interlining—with the airport stepping in to a brand new role as the intermediary adaptor between two incompatible systems.
Let’s talk healthcare: I’m keeping my eye on this trend, because healthcare is theoretically in the same boat as the big airlines. Whereas consumers used to tolerate paying high prices for “integrated healthcare” we’re now seeing the rise of a much more price-sensitive consumer. High deductible plans are contributing to this trend, and we’re seeing patients go out of their way to save money.
I’ve written about the risks of being an integrated system before—the punch line being that it’s hard for conglomerates to be more nimble than focused shops that offer a narrow range of services at a competitive price. The healthcare version of WOW airlines would be outpatient MRI or cataract centers, undercutting the big guys through their relentless focus on doing a few things well.
In New York, there’s very interesting new company, called Clear Health Costs that is making these sorts of efficiencies more transparent. Run by Jeanne Pinder, an experienced former New York Times reporter Clear Health Costs maintains a website that lists the best cash prices for healthcare services. For example, a vasectomy runs between $400 to $3500 according the site.
If I’m right, we’re going to see virtual interlining among healthcare consumers, who cobble together all the services they need websites such as Clear Health Costs. For patients prepared to deal with the hassle, record keeping, virtual interlining will make a whole lot of financial sense.
The question will be whether an entrepreneur decides to get into the intermediary space between incompatible systems— basically a “Gatwick Connect” business model that allows unrelated services and providers to interface with one another. There won’t be much incentive for incumbent healthsystems to be in this space, but I can see an interesting opportunity for a new breed of independent fee-based direct PCPs such as AtlasMD and others.
Photos: Alan Bruce via Flikr, cc; Gatwick Connect and Clearhealthcosts.com