Majors Cut More Services

Low-fare carriers poised to capture business; leisure fares to rise

By: Jerry Chandler

The airline industry you’ve come to know and love is radically changing and we’re not talking about commissions. Fundamental changes are taking flight that could significantly alter the way the majors operate.

In cascading fashion, here’s what’s happened over the last few days:

" American Airlines is “de-peaking” Dallas/Fort Worth International “to allow the airline to utilize people, gates and aircraft more productively,” the carrier said in a statement. Some of your clients may have to wait longer to connect.

At the same time, AA is retiring its 74-plane Fokker 100 fleet, deferring delivery of new aircraft and canceling some future aircraft. By November, AA’s capacity will have dropped by 9% compared to this summer.

The upshot of all this: Far fewer seats and, perhaps, more crowded airplanes. American is also axing first class on its 767-300 fleet. More changes could be on the way.

“We view these changes as an ongoing process,” said American Chairman and CEO Don Carty.

" Continental is getting rid of 11 MD-80s. By August 2003, domestic capacity will have been slashed by 17% compared to pre-Sept. 11 levels. CO is also making it harder on cheap-seat customers by laying on additional fees for services that low-fare customers select, doing away with discounts on certain published and unpublished low-fare categories, rigidly enforcing all fare rules with an eye toward eliminating “waivers and favors,” and, as if agents weren’t aware, further reducing distribution costs through advanced technologies.

“These are challenging times, and we need to do something now,” said Continental Chairman and CEO Gordon Bethune.

" Continental, Northwest and Delta have proposed a marketing agreement that envisions code-sharing, reciprocal frequent flyer programs, shared lounge privileges and schedule connections. The government, of course, must bless the agreement an arrangement in which the three carriers insist they’ll continue to compete against each other.

" Chapter 11 carrier US Airways has slapped new restrictions on nonrefundable tickets (see News, page 4). Effective immediately, nonrefundable tickets must be used for the specifically ticketed flight. They’ll be worthless once a flight has departed. Customers used to be able to credit the unused ticket toward the purchase of another US Airways seat, plus whatever change or reissue fees were applicable.

The US Airways move is indicative of just how desperately the airlines need to raise revenue. The economy, corporate cutbacks and airport security mean too many seats have been chasing too few fannies. And, the experts contend, this is not, at least near-term, a transitory trend.

“Some portion of business travel will likely not return to the network carriers for the next several years,” concluded a recent analysis by the Business Travel Coalition.

Another study, by The Boyd Group, an Evergreen, Colo.-based airline consultancy, predicts “there will be no quick snap-back” anytime soon. Traffic should bottom out this year and not reach the levels it enjoyed in 2000 until at least 2005, if then.

The BTC said there are fundamental changes at work within the nation’s business community, which will make it hard to return to the good old days. Fewer staffers are permitted to attend conventions, video conferencing is catching on, and more companies are chartering corporate jets or buying fractional shares of them.

Agents may want to consider booking more clients on low-fare competitors such as Southwest, JetBlue, Frontier or AirTran. The BTC believes low-fare carriers are poised to capture a quarter of the business “as major airlines flounder and cut back services.”

The major airlines haven’t written off formerly high-yield business passengers, but they seem, however reluctantly, to have concluded that business flyers aren’t going to be able to subsidize low-fare leisure travelers any longer. BTC predicts higher leisure fares are certain.

“The family of four traveling for a skiing vacation from Philadelphia to Aspen will likely pay 20% more for their tickets,” the report said. “The backpacker who bought a $99 ticket to Denver last winter will probably not find the fare available next year.”

If you think dealing with the airlines was a hassle before, buckle those seatbelts, the BTC advised: “There will likely be considerable confusion and surprises for travelers as routes and frequencies get rationalized.”

In the view of The Boyd Group, this rationalization means more airlines will be substituting regional jets for larger craft, a trend that’s already begun. Most troubling to agents who have clients in rural America is this prediction by Boyd: Propjets, the mainstay of many rural routes, are an endangered species.

“Any small airport that can’t support the much higher costs of a regional jet and is within two hours of a larger airport may want to plan on seeing local air service eliminated by 2006,” he said.

Fewer seats, smaller airplanes, slashed routes, less service and higher leisure fares. The bottom line for major airlines and those who would fly them is inescapable: Things are bad, and not likely to get better for quite a while.

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