US Airways this week officially began applying a new, simplified airfare structure for flights to and from its Philadelphia hub. The goal is to prevent passengers from jumping to Southwest Airlines, which yesterday launched services in the Philadelphia market. US Airways hinted at a wider rollout beyond Philadelphia but did not provide BTN with any specifics.
The carrier said the new fares are designed to provide corporate travelers with the best of both worlds: competitively low fares in affected markets and ongoing corporate discounts in unaffected markets. "The new fares are significantly better than those offered through existing corporate deals," according to Doug Leo, US Airways vice president of sales and international.
The new fare structure features one-way fares ranging from $29 to $499 that no longer require a Saturday night stay nor a roundtrip purchase
(BTN, April 26). It is in place on flights between Philadelphia and Chicago O'Hare, Fort Lauderdale, Las Vegas, Orlando, Phoenix, Providence and Tampa. It will be extended in July to Houston, Los Angeles, Manchester, New Orleans, Raleigh Durham and West Palm Beach.
The new fares generally are sorted into five or six categories: three or four capacity-controlled advance purchase levels, a walk-up fare level and reduced first class fares.
Higher Buckets Weigh Heavily
Because most of the new fares fall into lower buckets, they generally are excluded from corporate discount programs, though there could be occasions when a traveler in an impacted market uses a higher-bucket fare eligible for discount. "The structure of corporate contracts holds in this new environment, at least for now, as we have a mix of market types," Leo said. "In more traditionally priced markets, the corporate traveler still will get the fare that their contract calls for."
In noting that corporate accounts also have access to special services desks and other privileges, Leo said the airline immediately would address any scenario in which the new fares are negatively impacting corporate client relationships.
In competitive terms, the price points are, "in many instances, meaningfully higher than those offered by Southwest," according to J.P. Morgan Securities analyst Jamie Baker. "In the vernacular of pricing circles, this is known as charging a stupid premium. In the vernacular of airline executives, it is known as charging a yield premium for benefits passengers truly want, such as assigned seating, pre-boarding for elite flyers and the ability to pay $7 for a chicken caesar wrap."
Rather than completely overhauling pricing across its entire network, as Alaska Airlines and America West have, US Airways thus far has limited the new structure to its second-largest hub. "We expect US Airways to take a more proactive approach to fare reform in the future, potentially damaging industry revenue trends along the way," Baker said.
US Airways has been careful not to tip its hand. Leo said only that "the approximate low-fare model you see us previewing in Philadelphia is a sign of things to come, in general." Moreover, he said that "a richer mix" of low-fare markets—in "weeks, months or years"—could have more of a structural impact on traditional corporate programs.