AA Simplifies Price Structure, Cuts Selected Fares
American Airlines late last week began testing a simplified price structure that cuts fares on 23 business routes by 40 percent. However, since no other major has matched, industry experts are not convinced the move would be a permanent solution.
"If it works this is great news for the business traveler," said airfare analyst Terry Trippler.
The change streamlines fare offerings in the 23 markets from between 15 or more different fares to five. The five tiers include a new full-fare coach price at a 40 percent reduction over the old fare. The new fare requires a 30-day advance purchase and is fully refundable. A second tier is comprised of a full-fare first-class seat costing 25 percent above the new coach fares. Three additional fare classes are termed leisure fares because of their restrictions and include two classes of limited, discounted tickets that are 60 percent and 50 percent less than full fare and require 14-days advance purchase. The 30-day advance purchase ticket discounted is by 70 percent. The advance-purchase tickets fall into the nonrefundable category, according to the memo sent by the airline to travel agents.
Most of the fare cuts took place on 11 flights out of Dallas Ft. Worth, including Dallas to Los Angeles, but also included St. Louis to Austin, Texas, and Denver; Austin to Boston Logan and Los Angeles; four flights out of Baltimore; Albuquerque, N.M., to the three New York metro airports; New Orleans to Seattle; Raleigh-Durham, N.C., to San Jose; and Philadelphia to San Antonio.
Trippler expected American by next Monday to add additional routes or begin to question the strategy if other airlines have not matched by then.
The fare test could live or die depending on the reaction of other airlines and the amount of travel it stimulates, agreed independent consultant Rolfe Shellenberger, based in Palm Desert, Calif. "The fares are a vast improvement in that the range between the highest and lowest fares is not idiotic, but the fares are still too high, especially when Southwest Airlines said no fare should cost over $299. I don't think it's going to stimulate business travel."
However, Trippler said the fares are low enough to hold appeal. "If business travelers have been paying $300 with all those restrictions, they'll pay $600. I think they're responsible fares, but unfortunately business travelers want it all, all the options and the $198 ticket. They can't have that anymore."
American Airlines already attempted a similar change, termed value pricing, in 1992 that ultimately failed. "We regard both of these considerations as an important part of airfare rationalization and would like to encourage American to increase the number of test city pairs," said Nancy Holtzman executive director of the Association of Corporate Travel Executives. However, unlike the airline's 1992 fare strategy, corporate discounts will continue to apply to the new fares.
American selected the markets it did because "we wanted a selection of all different kinds of domestic routes," said AA spokesperson Tim Kincaid. However, Shellenberger suggested the airline specifically had targeted certain routes on which it enjoys dominance.
"The airline is approaching it much better than last time, in that they're only limiting it to a few segments and they're not segments where the ire of a competitor is likely to become a serious factor," Shellenberger said. "They're gingerly stepping into this."
"We think this offers simplicity and flexibility," Kincaid said, the latter referring to the fact that the fares are good any day of the week. The fare revisions do not specifically target business travelers, he added, though he declined to comment on whether the move seeks to resolve the disparity between business and leisure fares.