Delta, United and Atlantic Coast airlines in recent weeks each unveiled new one-class models that expand on the concept popularized three decades ago by Southwest and successfully emulated in recent years by the likes of JetBlue Airways and Frontier Airlines. Responding to changing economic and industry conditions, namely a waning appetite for exorbitant business and full coach fares, more airlines are embarking on single-class initiatives that eventually could relegate full service, multi-class products to international, transcontinental and other business-heavy domestic routes.
Though one-class configurations may never be the norm, they increasingly are impacting managed travel programs. For starters, they generally have lower costs. In many cases, however, these products do not have negotiated rates—fares generally are in lower buckets already excluded by airlines from corporate contracts—and may reduce markedly the breadth of discounting.
"With lower fares generally available, corporate travel managers will have less negotiating leverage," said Alan Sbarra, vice president of Oakland-based Unisys R2A Transportation and Management Consulting. "The discounts will be smaller if they no longer are buying a premium product."
Perhaps more problematic for corporate travel managers are traveler perceptions that nonpreferred, discount carriers offer a product very similar to those at preferred airlines. In some cases, the competing product is better than the preferred's and certainly superior to cattle car-like operations traditionally associated with discount airlines.
Indeed, some of the newer crop of single-class carriers—whether independent or part of a major carrier network—offer high-tech inflight entertainment systems, comprehensive pay-per-meal programs and, in some cases, even a few extra inches of legroom. While these ideas, based on lower-than-traditional fares, improve the overall value proposition, they do little to comfort executive corporate travelers accustomed to upgrading their way into premium cabins.
"The question is whether the network carriers can afford to step away from dual-cabin aircraft, and the answer has a lot to do with the value of frequent flyer programs," said Robert Mann of R.W. Mann & Co., an airline industry consulting firm in Port Washington, N.Y. "The front cabin might be the only reason network carriers could retain business on connecting routings against nonstops, for example, and now they are eliminating a variable in differentiating service."
Without such differentiators, the Big Six legacy carriers continue to watch marketshare shift to discount carriers. "I think we'll see defection," said a Boston area travel manager, anticipating JetBlue's arrival in Boston next month. "I predict JetBlue furthering my case for mandated carriers in particular markets to ensure we support our preferred vendors."
It is ironic that travel managers are taking such measures to support full-service carriers against low-cost airlines, following years of struggle against frequent flyer programs that lured travelers to full-service airlines. Now, travel managers also face an uphill battle in convincing travelers not to book lower fares—or perceived lower fares—on nonpreferred carriers. Considering the creature comforts offered by discounters that are absent from some major carrier operations, the case is harder to make each day.
Adapting to the evolving market, more corporations are bringing low-cost carriers into their supplier portfolios. WorldTravel BTI, for example, said 30 percent of recently surveyed clients have gone in that direction. Eclipse Advisors said a few clients have used a new tool, called Low Cost Carrier Opportunity Analysis, designed specifically to help corporations understand the ramifications of using non-legacy carriers.
Some of the majors are fighting back with their own lower-cost, one-class operations. Delta Air Lines, for example, next year will expand "significantly" its Song unit, with much of the planned growth emanating from the New York market. Song already operates 142 flights systemwide with 36 aircraft. Despite targeting the leisure market, the carrier has garnered a strong positive response from elite level frequent flyers and attracted more business travelers than initially expected, said Song president John Selvaggio.
Song is just one of several one-class models Delta now has in the domestic system. In addition to the Northeast shuttle and the largely single-class Delta Connection feeder network, Delta also is tinkering with a slightly fancier one-class concept on flights between Atlanta and both Houston Hobby and Kansas City. The tests, scheduled to run through the end of January, "are designed to provide extra comfort and convenience for business travelers." Specifically, the one-class Boeing 737-800 aircraft—former Delta Shuttle planes—are outfitted with all-leather seats, each with 36 inches of pitch and power outlets.
The one-class model as the standard rather than the exception in the domestic market "is worth looking at," Selvaggio said during a press briefing last month. "We have had the one-class model for years on the Delta Shuttle, and business travelers like the extra legroom," he said. "There are other markets that should have similar characteristics."
"This evolution may be the beginning of separate one-class service configurations, catering separately to budget and business passengers, one with and one without high service levels," suggested Felisa Kalinski, manager of travel and meetings for Irvine, Calif.-based Allergan. "With the chasm widening between these very different types of travelers, it may not be possible for the airlines to sustain the mix on one aircraft, as the planes get more crowded. We do not expect this new trend to affect our current round of airline contract negotiations, but we'll watch for further developments."
United Airlines' new low-fare product, Ted, is scheduled to launch service from Denver in February. Insisting the new operation would succeed where similar initiatives failed, and using the same word as Delta used in describing Song—"sustainable"—United said Ted by the end of 2004 would operate 45 156-seat Airbus A320 aircraft to a network of primarily western cities.
Despite being marketed as one class, Ted aircraft will include 11 rows of Economy Plus seating offering four extra inches of legroom. Economy Plus initially will be dedicated to elite frequent flyers, but United said it is "working on ways to make this section available for other passengers who are willing to pay a little more for extra legroom." United could not say how that would impact what it termed as Ted's simplified, six-tier fare structure. United hopes Ted can fend off the advance of Frontier Airlines, which plans to grow rapidly throughout the decade its own single-class product.
If it can sever codeshare ties with United and avert a hostile takeover bid by fellow regional operator Mesa Air Group, Atlantic Coast Airlines in mid-2004 intends to re-launch operations as a low-cost carrier, named Independence Air. ACA, currently a feeder operation for both Delta and United, has aspirations for its own 50-city network—including transcontinental flights—focused around Washington Dulles. It plans eventually to field a fleet of 112 planes—a mix of regional jets and new Airbus A319s and A320s—each in a one-class coach configuration.
"We believe that ACA is right in recognizing the market's need for lower fares out of Dulles," said Prashanth Kuchibhotla, senior airline analyst at Eclipse Advisors. "There are many small cities and towns along the East Coast where such airlines as US Airways and Delta have monopolies—or cozy duopolies—resulting in high fares." Kuchibhotla also noted that other proposed Independence Air markets—Denver, Los Angeles and San Francisco—target United.
More one-class airlines are on the way, including Project Roam, a Pittsburgh-based initiative led by industry veteran Travis Tanner, and a Virgin-branded U.S. domestic operation slated for 2004.
Of course, it is too early to write the obituary for the domestic premium class cabins. The Big Six still use them as incentive for their frequent flyers—especially on longer, business-oriented routes—and will come to different conclusions about how best to use aircraft space.
"The network carriers will not all go to single class," predicted Larry Restiano, director of the customer value program and consulting group for American Express supplier relations. "The first class cabin gives the majors a point of differentiation against the low-cost carriers in getting corporate travelers, and they need it from a yield management perspective."
Continental Airlines, for one, has no plans to go the single-class route and, in fact, recently developed programs to upgrade more business travelers into the premium cabin 22.
(BTN, Sept. 22).Even some profitable lower-cost carriers—such as America West and AirTran airlines—offer a cushier premium cabin. Alaska Airlines recently decided to keep first class after extensive evaluation, and US Airways has added a premium cabin to its Northeast shuttle.
Meanwhile, there are fresh attempts at all-first class operations, catering primarily to the corporate market. Aside from a slew of private business jet services, Primaris Airlines, based in Las Vegas, plans to launch early next year, with service to Chicago, Los Angeles, New York and San Francisco. A Primaris official said several corporate accounts already have signed on and efforts continue through the corporate travel agency channel.
Scheduled, all-first class models have been tried. Recent failures include Chicago-based Indigo and Dallas-based Legend Airlines. Workable models include Lufthansa's premium transatlantic service furnished by PrivatAir
(BTN, March 24). "Corporate jets flying in certain markets will replace first class service on network carriers," predicted Unisys' Sbarra. "Network carriers will say they cannot afford to run two operations and will become more for the masses."