Economy Lifts Low-Fare Air

<B>Economy Lifts Low-Fare Air</B>

By David Jonas

As their larger competitors continue to get slammed by weakening business traffic, four low-cost carriers are drawing more interest from corporate buyers keen on saving travel dollars in the challenging economic environment. AirTran Airways, Frontier Airlines, JetBlue Airways and Southwest Airlines--each profitable and growing steadily--are further tailoring services and purchasing options for managed travel programs.

"There is no question that travel managers are looking more at these airlines than a few years ago," said president of Wilmington, Del.-based Travel Metrics Greg Moore, who recently moderated airline competition panel discussions at local Business Travel Association chapters. "Low-fare carriers are becoming more successful in overcoming objections that have been rooted in misunderstanding. Corporations are more inclined to tell travelers to either stay home or travel more affordably."

That inclination has been particularly apparent in such cities as Atlanta and Denver where AirTran and Frontier, respectively, gradually have secured thousands of corporate contracts and seen their number of business passengers increase at the expense of Delta Air Lines and United Airlines.

Moore also recently penned a new research paper on competition and corporate purchasing in those markets, advocating a long, hard look at migrating at least some business to the likes of AirTran and Frontier. In citing substantial savings on full-fare coach tickets, oftentimes hundreds of dollars less to many key business markets, he said discounts from major carriers are not deep enough to hold travel costs steady. "The message is that companies don't need to shift all their business and abandon their large suppliers, but just move some of it to make sure the small guys stay around and maintain competition," Moore said.

Cost-relief also has arrived in several smaller Northeast markets, thanks to JetBlue. Rochester, N.Y.-based Eastman Kodak, for example, helped the carrier get off the ground early last year and, in return, has seen lower travel costs to New York City. It now hopes to benefit from JetBlue's developing transcon network centered around Long Beach, Calif. "A fully refundable midweek trip to LAX can be as high as $1,900 roundtrip on larger carriers before discount, and Long Beach isn't that far from LAX," said Doug Baldy, Eastman Kodak coordinator of corporate travel services. "If JetBlue offers a good schedule at low prices between Rochester and Long Beach, it may offset the inconvenience of flying east to connect at JFK."

JetBlue in October also plans to launch its first non-hub routes when it links Washington Dulles with Long Beach and Oakland. One-way fares will range from $129 to $299. "We have seen an increase in demand from business travelers which we measure by looking at close-in bookings, especially on West Coast routes," confirmed Tim Claydon, JetBlue vice president of sales and distribution. "And during the past six months, we have started to become part of the standard RFP process and have had good success thus far in getting chosen as a preferred."

To accomplish that, JetBlue has been thinking outside of the traditional, low-fare, nonrefundable box. For some corporate clients, the carrier will waive change fees, allow cancellations and afford other special treatment handled by a dedicated corporate desk. Meanwhile, direct purchasing, a model first implemented with HSBC Bank to cut out transaction costs (BTN, Oct. 2, 2000), is being pursued with more clients that have particularly high-frequency citypairs. To drive that program, JetBlue currently is working to increase the level of reporting it can provide to a company's back-office systems.

A constant frustration for JetBlue, however, is the tendency for a potential corporate client during the bidding process to focus strictly on discounting levels. "It is an educational process with corporations," Claydon acknowledged. "We have to turn the RFP on its head to make sure we can push through our cost savings so that it is picked up in the corporate modeling procedures."

AirTran, too, is looking at equating discounts to its offerings, specifically waived changed fees. "Generally speaking, for an average company, that probably equates to a 15 percent discount off our published fares," said director of sales Bill Howard.

Meanwhile, venturing further into the corporate travel world, AirTran earlier this month launched its first-ever meetings program, offering an additional 5 percent across-the-board discount for groups of 20 or more.

Southwest, which has become a thorn in the side of just about every major carrier, easily outperformed the industry in the second quarter (see story, page 46). Its SWABIZ online booking portal for corporate clients continues to peak interest despite minimal marketing efforts. "We don't bid for corporate accounts, but we want our fares available to all companies, even for the largest travel programs," said Dora Tanton, Southwest marketing manager in Austin, Texas. Tanton recently represented Southwest on the Airline Competition Panel, which also included AirTran, JetBlue and Frontier and has been well-attended by corporate travel managers. The informative sessions, held last month at the Austin BTA and earlier this spring at the Bay Area BTA, allowed the four carriers to clear the air on such issues as GDS accessibility, travel agency commissions, safety, interline agreements and frequent flyer programs.

"It was a good audience for SWABIZ," Tanton said. "But also, this type of forum lets us communicate with our customers. If someone is beating our fares, we want to know about it." With nearly 100 people in attendance, many of them travel managers, the Bay Area BTA session provided a first look for many travel managers that have had little exposure to the East Coast-based carriers. "In the case of JetBlue, for example, their salesforce is so limited that even though they are flying in and out of the Bay Area, this was the first opportunity for buyers to see and hear from their reps," said Dorian Stonie, Bay Area BTA chapter president and manager of Internet travel technologies at Hewlett-Packard. "It is incumbent upon travel managers to understand the overall market and the players they might be using down the road. While they might not use those services out of San Francisco, they have employees elsewhere who could be flying them."

The Airline Competition Panel is scheduled to roll into the Utah Business Travel Association in September.

Interest from corporate travel managers is one indicator of the growing success of these four carriers; the latest round of earnings reports is another. Most major network carriers lost tens of millions of dollars, while AirTran, Frontier and Southwest remained solidly profitable. Privately held JetBlue, which does not publicly report financial figures, told BTN that its first and second quarters were in the black after first reaching profitability last August, just six months after launch.

Frontier earlier this spring posted record profits for its fiscal year and is set to add Austin, Texas, and Reno, Nev., on Oct. 1. Southwest said its latest quarterly performance is "a testament to our recession-resistant low-fare business strategy." AirTran's numbers, while not near Southwest's, were nonetheless impressive. Net income of $28.3 million, before a one-time charge, beat last year's performance and marked the highest quarterly profit in company history. Overall, passenger revenues skyrocketed 28.7 percent. AirTran CEO Joe Leonard cited "a redirection of some business travel toward us in an uncertain economy."

While continuing to make money, AirTran recently forced the hand of its prime competitor, Delta Air Lines, after years of relatively peaceful co-existence. Delta last month relaxed fare restrictions in most markets where AirTran competes head to head (BTN, July 16) and then announced mainline jet service from Atlanta to Akron/Canton, Ohio, Chicago Midway and Ft. Walton Beach, Fla., all AirTran destinations. In a research note to investors, UBS Warburg analyst Jamie Baker said Delta also matched recent promotional sales on one-way fares, underscoring "Delta's commitment not to be undersold in Atlanta."

AirTran, however, is poised to strike back. Representing the carrier at both BTA panel sessions, AirTran's Howard said, "We are marching forward, working on our game plan and looking at additional flights out of Atlanta. We are not sure what Delta is doing, but it looks like they are trying to lose a lot of money."

Printed reports speculated that AirTran's new flights could link Atlanta with Delta's second largest hub, Cincinnati. "We would expect AirTran to announce new service to key Atlanta business markets they do not already service," UBS Warburg's Baker said. "We view AirTran's decision as the proper short-term tactic, though we would note that it introduces the risk of competitive escalation."

AirTran earlier this month also fired another shot across US Airways' bow in launching four daily flights between US Airways' Philadelphia and Pittsburgh hubs. AirTran late last year began service between Pittsburgh and Atlanta, Chicago Midway and New York LaGuardia. US Airways constantly identifies AirTran as an aggressive invader throughout its core operating region.