This week: loss-plagued major carriers begin considering a drastic overhaul of the fare structure; Delta and AirTran go to war in Atlanta; United Airlines continues to pay the price for last summer's meltdown; Northwest Airlines offers a free Minneapolis stopover on Canadian flights; and Delta reduces service in some BusinessElite cabins.
COUNTER INTELLIGENCE: Fear and Loathing (and Panic) in Fareland
Most major U.S. carriers this week posted losses for the normally profitable second quarter and they all blamed a sudden and precipitous decline of business travel. Privately, the carriers admit they see two disturbing long-term trends: continued defection of business traffic to low-fare alternate carriers and reduced demand for business travel through at least the second quarter of 2002. All that real and potential red ink is finally leading some executives to think the unthinkable: Only a wide-ranging change in how the major carriers price their product will entice business travelers back to the fold. "Business travelers have spoken and they are telling us the old model of inflated business fares and below-cost leisure sales won't cut it," one executive told me Wednesday. In fact, four airlines are at least discussing radical changes to their fare structures. Among the ideas being considered: lower-cost, advance-purchase first-class fares; non-refundable, walk-up coach fares as much as 40 percent below traditional full-fare Y prices; and even low-cost, advance-purchase fares that do not require a Saturday-night stay. Will any of the innovations come to fruition? "The longer we get pounded, the more likely it is that we'll try something new," one pricing executive said.
ALTERNATE ITINERARY: Delta and AirTran Prepare for War
As if to illustrate exactly how much business traffic the alternate airlines have spirited away from the overpriced major carriers, Atlanta-based Delta's recently announced fall schedule is nothing less than a declaration of war on AirTran Airways, the low-fare specialist whose primary hub is also Atlanta. Delta will reduce the number of daily flights it operates from Atlanta to cities such as Boston, Philadelphia, Newark and San Jose, California. It will also completely eliminate the nonstop Delta Shuttle route between Boston/Logan and Washington/National. But what's new on the Delta schedule is mainline jet flights from Atlanta to Akron/Canton, Ohio; Fort Walton Beach, Florida; and Chicago/Midway. Those just happen to be cities where AirTran currently offers the only nonstop jet service. AirTran isn't taking the challenge lying down. On Tuesday, it reported second quarter earnings of $28.3 million and AirTran chief executive Joe Leonard predicted a competitive response. "We stayed out of some Delta markets because we didn't want to awaken the sleeping giant," he said. "Now they've awakened the sleeping midget."
CONNECTIONS: What's New at the Airports
Northwest Airlines is offering a free stop-over at its hub in Minneapolis/St.Paul for passengers traveling between the United States and Canada. The promotion is valid on published fares via Minneapolis from September 1 to December 15. … Laptop Lane has opened a business center at Seattle-Tacoma International. Located in the North Satellite between gates N8 and N9, the facility offers fully-equipped private offices that rent by the minute. … A 382-room Hilton International hotel has opened at Copenhagen Airport.
EXECUTIVE SUMMARY: United Inherits the Ill Wind
Business travelers continue to penalize United Airlines for its miserable operations and callous disregard for the welfare of its best customers. Since the carrier experienced its operational meltdown last summer--on-time performance was as low as 25 percent during some weeks and the carrier abruptly cancelled as much as 10 percent of its schedule--United's domestic traffic has declined for 11 consecutive months. And on Tuesday United reported a staggering second-quarter loss of $292 million. (By comparison, American Airlines lost a more modest $105 million.) That brings United's loss to $605 million for the first six months of 2001. For the 12 months beginning with last year's third quarter, the cumulative loss is a staggering $793 million. "The worst thing is that management here just doesn't get it," one distressed United executive told me yesterday. "No one here is prepared to face the hard fact that we alienated a huge percentage of our best customers last year, we never apologized and never won them back, and we continue to antagonize the base we still have by cutting what we offer our first-class and [most frequent] flyers. Even if we planned it, we couldn't lose more money or more customers."
ON THE FLY: Business-Travel News You Need to Know
Cathay Pacific has abandoned plans to launch a New York/Kennedy-Hong Kong nonstop on September 1. … Delta Air Lines is cheapening the BusinessElite product on its 767 fleet. It will eliminate one flight attendant from the BusinessElite cabin and switch to prepared salads and breads during its meal services. … Shangri-La Hotels has opened a 453-room property in Nanjing, China. … An Australian law firm has sued three international airlines over blood clots suffered by passengers on long-haul flights. The case will probably take 18 months to come to trial.
VERBATIM: How the Other Half Flies
Maybe the only way to get better airline service is to get elected President and begin riding Air Force One. Buried in an otherwise smarmy National Geographic special that has been airing on PBS this week were pithy observations from two of Air Force One's most recent frequent flyers. Former President George H.W. Bush fondly remembers his four-year-stint as Air Force One's passenger-in-chief by saying flights operated 100 percent on time and his luggage was never lost. And President Bill Clinton, interviewed just weeks before his term of office ended in January, suggested his "Christian bearing will be tested by a return to commercial air traffic."