"Struggling airlines boost the luxury quotient"

Sunday, October 9, 2005

Struggling airlines boost the luxury quotient 
Carriers add extras to vie with fancier foreign offerings
BY David Armstrong
The San Francisco (CA) Chronicle


As the crowds of summer melt away and the price of fuel remains high, the
airline industry is rolling out new amenities in the air and on the ground
to woo travelers and raise revenue in a tough competitive environment. 

Consider a full-blown spa in an airport lounge, complete with pool and
sauna. Home pick-up of your luggage, so you don't have to lug it to the
airport. In-flight e-mail access. New flat-bed seats and new aircraft.
Business-class-only flights from New York across the Atlantic and additional
flights from San Francisco to the South Pacific. 

Many of the new bells and whistles are designed to please high-paying
business and first-class customers at the front of the plane, as airlines
struggle with a paradoxical problem: They are flying with full planes but
losing money on many tickets because of historically low fares. 

Both domestic and foreign carriers traditionally offer sales in early fall,
but such deals are short lived. The new wrinkles in service and
infrastructure are intended to attract more passengers over the long haul
than seasonal sales. 

Many of the boldest innovations are coming from foreign carriers, which tend
to be less financially hard pressed than U.S. airlines that are still
struggling to pull out of a four-year slump during which they have lost $32
billion. 

Air New Zealand, for instance, is boosting premium service to bring in
revenue. The carrier, which is 80 percent government-owned but operates as a
business without direct subsidy, is spending $800 million to upgrade its
long-haul fleet, put in premium economy class on the upper deck of its
Boeing 747-400s, install flat beds in business class and offer digital
in-flight entertainment at every seat. 

A business class ticket on the popular San Francisco-to-Auckland route costs
$6,000 for a round-trip flight in early December. The new premium economy
class on the same route on the same dates goes for about 30 percent more
than the $1,005 economy fare. 

Air New Zealand's business has been lifted by a 16 percent jump in foreign
tourists to New Zealand over the past five years, after the scenic country's
exposure in the "Lord of the Rings'' film trilogy. The airline turned a $180
million profit in fiscal 2005, in spite of soaring fuel prices. It expects
to pay for its upgrades with increased revenue, according to spokeswoman
Lucy Powell. 

Air New Zealand, which began thrice-weekly service between San Francisco
International Airport and Auckland, New Zealand's largest city, in June
2004, doubled the number of weekly flights last month. The carrier doesn't
release the percentage of seats filled for specific routes, but Powell said
the SFO-Auckland service "is doing very well.'' 

"With premium economy-class fares, which are available for 25 to 30 percent
more than economy fares, we have already seen strong bookings in North
America,'' said Gus Gilmore, Air New Zealand's vice president for the
Americas. "Bookings have been especially strong in San Francisco and
London.'' 

It's been a different story for money-losing airlines. Such changes are
difficult for these carriers to pull off and could hurt them if people don't
buy the changes, said Ann Heffron, a transportation analyst with Zacks
Investment Research in Chicago. 

Heffron said that although airlines may take in more revenue from premium
customers on international flights, it will not be nearly enough to offset
oil prices and other high operating costs. 

The situation is dire for major U.S. carriers, some of which are in
bankruptcy. They are furloughing workers, eliminating pretzels, pillows and
magazines on domestic flights and trying to avoid pension obligations. 

Despite the tough environment, a handful of airlines are trying to innovate
their way out of trouble. 

American Airlines opened an expansive Admirals Club lounge in a huge new
$1.1. billion terminal at New York's John F. Kennedy International Airport
in August. 

American spokesman Alan Phillips said that while the project was scaled back
from $1.3 billion, the new terminal is still a major milestone for American,
which plans to pay for it out of earnings. By cutting costs and gaining
concessions from unions, the Fort Worth, Texas, carrier managed to post a
$58 million profit in the second quarter after nearly landing in Chapter 11
last year. 

The expanded lounge for business- and first-class passengers is double the
size of American's previous JFK lounge. It can seat nearly 200 premium
customers, according to the airline, and includes a business center with
free high-speed Internet access, showers and a children's room. 

American, the world's largest airline by passenger traffic, also recently
opened a lounge in the Honolulu airport and plans to enlarge overhead
luggage bins and install flat-bed seats in business class in 2006 and 2007. 

Such amenities may give big carriers an advantage over low-cost airlines,
which have increased their market share to nearly 30 percent but generally
do not offer connecting service, airport lounges or a wide range of
comforts. 

But even American's sparkling new JFK lounge is more than matched by leading
international carriers in important foreign airports. 

The revamped and expanded Virgin Atlantic Airways Clubhouse at London's
Heathrow Airport, a lounge for travelers in Virgin's combined business and
first class, includes what the airline says is the first airport spa
anywhere, with a Jacuzzi and a sauna room. 

The lounge has had hairdressers, massages and showers, a restaurant-size
kitchen for preparing hot meals and a bar for years. 

In the air, Virgin Atlantic, which operates one daily flight between SFO and
Heathrow, offers massages, guided meditation tapes for fearful travelers or
people just too frazzled to sleep, and free drinks for passengers in all
three classes. 

Even startups are getting in on the action. 

Eos Airlines plans to begin service from JFK to London's Stansted
International, a secondary airport outside the British capital, next month.
Eos, which is privately held and based in Washington, plans to customize a
small fleet of Boeing 757s by reducing the planes' capacity from 200 seats
to 48 to create more space in an all-business-class configuration. Eos'
investors include San Francisco's Golden Gate Capital. Former Charles Schwab
Corp. chief executive David Pottruck recently signed on as the fledgling
airline's nonexecutive chairman. 

In-flight amenities have been added to transpacific flights, which are
longer than transatlantic flights. 

Additional flights from SFO to Down Under will start March 29, when
Australia's Qantas Airlines starts thrice-weekly nonstop service to Sydney,
one of San Francisco's official sister cities. 

A few carriers are extending new amenities to all passengers on a flight.
Japanese carrier All Nippon Airways offers Internet and e-mail services from
every seat in all classes on its 12-hour daily flights between SFO and
Tokyo's Narita airport. Early next year, ANA plans to fly the route with its
latest aircraft, the Boeing 777-ER. 

Singapore Airlines, long known for its exceptionally good customer service,
is trying out what it calls Baggage Direct. For $30 for the first person
flying and $15 for each additional member of a traveling party, the airline
will pick up travelers' luggage at their home or office six to 24 hours
before departure, check the bags at the airport and have the luggage waiting
at the destination. 

For now, the baggage pick-up is available only to passengers from LAX, but
if it proves popular, the airline plans to introduce the service elsewhere.


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