"'Simplified' ticketing is not so simple for all fliers"

Monday, February 7, 2005

'Simplified' ticketing is not so simple for all fliers 
By Marilyn Adams
USA TODAY


In the new world of airfares, Tony Randall is one of the lucky ones.

Fares had been so high at Randall's local airport in Greenville, S.C., that
the machine salesman routinely drove 250 miles to fly from Raleigh/Durham,
N.C. There, discounter Southwest Airlines keeps fares in check. 

After Delta Air Lines cut some of its business fares and simplified its
ticket pricing a month ago, Randall says he was "shocked" to see Delta's and
US Airways' last-minute fares at Greenville fall hundreds of dollars
overnight. He'll fly from Greenville from now on. 

"My life is going to be much more convenient," he says. 

That's not true for everyone. While Delta boasts that its new pricing scheme
is refreshingly simple, the airfare environment it has helped shape is
anything but. During the first week of 2005, No. 3 Delta and No. 1 American
rocked the travel industry, announcing simplified pricing schemes that mimic
those of profitable discounters. In one stroke, Delta streamlined and cut
domestic fares for millions of its customers. The biggest beneficiaries:
business travelers who book at the last minute and had to pay the highest
fares. 

American followed Delta with a less deeply discounted ticketing version of
its own. With the two industry giants jumping in, 60% of U.S. domestic
airline tickets are now sold under simplified pricing.

But buying airline tickets has not suddenly become simpler and cheaper for
everyone, everywhere in the USA. Behind the industry hype of deep discounts
and simpler fares lies a nuanced and complicated ticket-buying landscape,
consumer advocates say. Deep price cuts highlighted by Delta and American
benefit a relatively small percentage of travelers. Prices on routes where
one airline dominates remain high. Claims by competitors who said they'd
match fare cuts by Delta and American have proved only partly true.

Discounters, in general, continue to beat traditional airlines in selling a
bigger share of their tickets at rock-bottom prices.

What has changed in the new era of simpler fares is this: Sky-high fares for
last-minute tickets have tumbled. Travelers have greater flexibility with
the fading of Saturday-night stay requirements. The price spread has greatly
narrowed between the most- and least-expensive tickets on any given flight.
Some employers who buy air travel in bulk for employees are finding less
incentive to contract with airlines.

In contrast with Randall's good fortune, there's been no upside for Denis
Wolowiecki, a consultant who flies every week from his home in Cleveland to
Houston, a route Delta doesn't serve. Continental Airlines, which dominates
the route, hasn't dropped fares, Wolowiecki says. The round-trip fare
remains $1,018, before his corporate discount. "There hasn't even been a
blink," he says.

A definite change 

Delta's announcement of what it calls its "SimpliFares" represents
significant change from the decades-old system of pricing airline tickets at
traditional carriers. 

Airlines such as Delta, American and United have maximized revenue by
charging business travelers, who often need to buy tickets at the last
minute, the highest fares. At the same time, airlines rewarded companies
that bought lots of tickets with fare discounts. 

The big airlines offered the cheapest fares to fliers willing to stay
Saturday night at their destinations, effectively ruling out business
travelers. Meanwhile, a single flight might contain dozens of fares, with
the top fare in coach as much as five times higher than the lowest.

For years, low-cost carriers such as Southwest, AirTran and more recently,
JetBlue, had been bringing low-fare service to more cities, forcing the
biggest airlines to cut fares to compete. Delta, whose network overlaps
those of AirTran, JetBlue and Southwest, was under pressure to change.

Today, Delta offers six fares in coach class and two in first class on
domestic trips. SimpliFares don't affect international flights or the
Northeast Shuttle serving Boston, New York and Washington. Last-minute coach
tickets cost a maximum of $499 one way or $998 round trip. In first class,
the maximum is $599 one way.

American's new structure offers eight coach fares, but its one-way maximum
is $699 one way in coach class. Both eliminated the Saturday-night stay
requirement for the cheapest fares. 

Delta CEO Jerry Grinstein says a traditional carrier like his has no choice
but to embrace elements of the simple, low-fare airline business model that
has brought success to discounters like Southwest, AirTran and JetBlue.

"For Delta to survive, we must develop a fundamentally different way of
doing business," Grinstein said when Delta posted a record $5.2 billion loss
for 2004. 

Timing scrutinized 

UBS analyst Robert Ashcroft estimates that the price changes could cost
Delta half a billion dollars this year in revenue, not to mention the other
carriers that have matched their fares. Delta executives say they believe
the new fares will cost Delta in the short term but be positive over time as
the company cuts costs, attracts more customers and wins back business
travelers from discount airlines. 

Regardless of the effect on the airlines and their investors, implications
of the new pricing for consumers are widespread and, in some cases,
unexpected: 

."Matched" fares. When Delta and American cut selected fares, many
competitors said they'd match. But experts such as consumer advocate Terry
Trippler say the matched fares offered by other major airlines are sometimes
matches in name only - fares technically for sale but so limited in number
or restrictions, they're hard to find or impractical to use. Even when major
airlines match Delta's fares to the dollar, flights on discount carriers are
often cheaper.

.Corporate contracts. Companies that buy large numbers of tickets for their
workers traditionally have worked with airlines under complex contracts
filled with incentives and penalties. 

Now, the rules have abruptly changed. Delta and American are hastily fanning
out to corporate clients, rewriting contracts and limiting or eliminating
discounts because their fare restructuring has slashed prices for
last-minute business travelers.

.Leisure travel. Simplified fares won't save the typical leisure traveler
money because advance purchase ticket prices were already so cheap. An
analysis by Back Aviation Solutions shows the least expensive fares
available on Delta right before the Jan. 5 announcement haven't changed. 

But trips for the budget traveler might be easier to plan now that a
Saturday-night stay isn't required. 

Corporate confusion 

Corporate travel managers, keepers of every company's travel budget and
airline contracts, are on the front lines of the new fare systems. Since
Delta's announcement, travel departments have been scrutinizing their
contracts and waiting for airlines to explain what the changes will mean.

Kevin Mitchell, who runs a corporate travel advocacy group called the
Business Travel Coalition, says when an airline simplifies its fare
structure, it triggers "an unending number of policy questions." What, for
example, do Delta's new fares mean for a company's contract with the
airline? What do they mean for contracts with other airlines?

Delta has told Buffalo-based Rich Products, the $2 billion-a-year maker of
Coffee Rich creamer, that its double-digit corporate discount is gone, says
Jean Covelli, Rich's travel administrator. Because SimpliFares offer a
better deal than the old corporate discount, Covelli says she doesn't mind.
Under the old scheme, for example, Delta's top coach fare from Buffalo to
Los Angeles was more than $900 one way, even with Rich's corporate discount.
The same trip on Delta today: $549 including tax. 

Some corporate travel experts such as Mitchell say simplified fares and the
reduction of corporate discounts make corporate contracts, and loyalty to
one airline, unnecessary. "Corporate discounts were a silly game," he says.
Airlines, he says, charge business fliers sky-high fares on one hand and
give them discounts on the other. 

Delta officials argue the corporate contract is not obsolete. Pam Elledge,
Delta's vice president for sales, says domestic corporate discounts aren't
being eliminated. Further, Delta offers companies other benefits: an
international network, airport clubs and help getting groups of employees to
the same event. 

Price match, rule difference? 

If corporate travel managers are struggling with the implications, it can be
harder for the individual traveler. Trippler, president of travel
information site TerryTrippler.com, says many passengers don't understand
subtle differences that can arise in fare rules. Comparison shopping is
essential, he says. 

Although other airlines say they are matching Delta's fares, technically,
that isn't always so, he says.

For example, the supposed matched fare might be priced the same but be
non-refundable as opposed to refundable. Or the good price might be
"capacity-controlled," meaning it applies to only a few seats on the plane,
which sell out quickly. 

"They may match the price, but not the rules," Trippler says. 

That was the case with several trips Trippler checked last week. Delta, for
example, offered a refundable, one-way fare of $499 from New Orleans to
Seattle, a trip that requires a connection. Although the same fare might be
available with restrictions on other carriers, the fully refundable fare on
American was $699, United's was $1,012, and Northwest's, $1,013, Trippler
said. Continental matched with a fully refundable $499. 

Despite some dramatic fare cuts, Delta doesn't necessarily have the lowest
fare on a given route. Sometimes, the fare on a discount carrier is lower.

"Fares overall are lower, and carriers are matching each other, but that
doesn't mean Delta is a low-cost carrier," says consultant David Beckerman
of Back Aviation. 

For example, Delta's highest last-minute fare from Atlanta to Tampa was $481
one way on Jan. 3, two days before Delta's fare overhaul. By Jan. 8, it had
dropped to $343, Beckerman said. But the fare on discounter AirTran Airways
was $208.

"Delta is counting on AirTran running out of seats" at that price, says
Beckerman, who once worked in Delta's pricing department.

New pricing pushes many costs down

New pricing unveiled by Delta and American during the first week of 2005
drove down average business and leisure fares. Changes in one-way fares,
Jan. 10 vs. Dec. 13: 

Airline     Business    Leisure

American        -39%         2% 
Continental     -41%       -10% 
Delta           -34%        -5% 
Northwest       -19%       -11% 
United          -14%        -3% 
US Airways       -3%       -19% 
America West     -1%        -5% 

Overall avg.    -25%        -7%


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