"Corporate Fliers at Near Revolt Over Airline Fare Policies"

Tuesday, April 2, 2002

Corporate Fliers at Near Revolt Over Airline Fare Policies
By LAURENCE ZUCKERMAN
The New York (NY) Times


William Harvey, a manager at Eastman Kodak, flew from Rochester to Chicago
last October. Had he followed the standard business itinerary, leaving on
Sunday and returning the following day, he would have paid $798 for the
round trip. Instead, he flew to Seattle on Saturday, saw a Mariners game,
spent the night, flew back to Chicago, attended his meeting, and flew home.
Total fare: $212.

"The airline's own rules and fares encourage you to do that," Mr. Harvey
said, even though he took up space on several flights.

After years of rising complaints, business travelers' frustration over the
inequities of airline pricing has reached a point of near revolt. Fare sales
introduced after Sept. 11 to woo back nervous Americans have widened the
already yawning gap between the cost of buying a ticket in advance and
showing up at the gate at the last minute. Special deals available on the
Internet have only added to business fliers' anger.

They are fighting back by any means they can. Some, like Mr. Harvey, are
working the system. Others are driving. In perhaps the most common form of
retaliation, many are simply staying home. Business travel fell sharply last
March as the economy slowed, and then dropped off a ledge after Sept. 11.

And it can be little comfort to airlines that the road warriors who kept
flying through the fall now feel betrayed - repaid for their loyalty with
higher costs, greater restrictions and fewer amenities. The latest slap was
a decision by the largest carriers to cut most commissions for travel
agents, prompting many to raise their service fees and thereby increase the
cost to customers.

"I would like to see the airlines act like they want our business," said
Steve Kaye, a software company manager in Atlanta. "Between security and no
meals on long flights, it ends up being a pretty long day."

Some airlines have responded with lower-cost business fares that do not
require a Saturday night stay. But these are Band-Aids on a system that even
many industry executives admit is broken. "There is an overriding need to
move to a simpler fare structure," said Rono Dutta, the president of UAL,
the parent of United Airlines. "People have a hard time making the purchase
and feeling good about it."

Even so, airlines have trouble seeing beyond their buckets of red ink. The
domestic industry lost a record $7 billion in 2001 and is forecast to lose
$3 billion to $4 billion this year. Any experimentation with fares risks
widening those losses.

Though business fares have not actually risen since Sept. 11, they have not
come down, either, as leisure fares have. The airlines say lowering
last-minute fares only costs them money because it does not stimulate more
last-minute purchases, while reducing leisure fares fills more seats.

That may make financial sense, but it makes business travelers see red.
"They keep telling me fares are coming down, but I don't see it," said Dean
Burri, owner of a South Carolina insurance company who logs 300 flights a
year.

Many businesspeople are protesting the stubbornly high rates by spending
extra time on the road or booking in advance to cut their travel costs.
Research by United showed that the proportion of business travelers flying
on business fares has declined to 55 percent from 61 percent two years ago.

The big airlines have also been losing share to low-fare competitors like
Southwest Airlines and JetBlue Airways. At the other end, chartering private
business jets has become more attractive to many companies.

Della Maricich, who runs a Seattle company that designs and produces trade
show exhibits and graphics, has found her own creative solution. Whenever
someone in her organization has to fly on short notice and faces a $2,000
fare, she uses frequent-flier miles. "We have a bank of miles available,"
she said.

To others, the answer to sky-high walk-up fares is to drive, or simply stay
home and rely on alternatives like videoconferencing. "As justified for the
expense as you used to have to be, you now need to be hyperjustified," said
Mr. Kaye, the software company manager.

The smaller choice of flights and longer waits at airports since Sept. 11
have even pushed some business executives out of the market who would
otherwise be willing to pay more for convenience. Mr. Kaye has stopped
flying to several Western cities because it takes too much time. "It's not
just the high fare but the lost productivity," he said.

Some airlines have made limited pricing concessions to business customers,
but critics say those moves have actually added to the complexity of the
fare structure and have failed to get to the heart of the problem: the
stratospheric rates charged to last-minute travelers.

Two years ago, for example, Northwest Airlines executives realized that many
business fliers were willing to stay over a Saturday night rather than pay
higher restricted fares. It then lowered its business fares by 40 to 50
percent, a savings roughly equivalent to the cost of spending the extra time
on the road. Even so, the tickets have to be ordered 10 to 14 days in
advance. Other carriers, including United, AMR's American Airlines and Delta
have introduced alternate business fares of their own.

Earlier this year, Rosenbluth International, a big travel-management
company, proposed a more ambitious solution to airlines: cut business fares
30 percent across the board and reduce corporate discounts by the same
amount.

But airline executives countered that such simple formulas would cost them
sales. "We just haven't been able to make the economics work," Mr. Bach of
Northwest said.

In any case, a new fare structure would be vulnerable to competitive
cost-cutting. Carriers have learned that they must match a rival's fare or
risk losing market share.

Last week, America West Airlines lowered its walk-up fares and relaxed
restrictions, but because it carries just 3 percent of domestic passengers
and attracts relatively few business travelers, analysts doubted that the
initiative would do much to shake up the industry.

Kevin P. Mitchell, the chairman of the Business Travel Coalition, which
lobbies on behalf of large corporate travel managers, says he believes that
change will come only when an airline reaches an agreement with some of its
largest customers and gets the companies to commit themselves to the new
structure.

"Other carriers aren't going to sabotage you if the best customers in that
market are behind you," he said.

Business travelers are eager to get the airlines on their side. "Right now
it seems to be us against them," Mr. Harvey said. "The bottom line is you
have to find ways to make the experience better for the customer."

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