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SimpliFares Dead, But Legacy Remains

By Jay Boehmer / September 23, 2007 / Contact Reporter
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You likely won't hear Delta Air Lines executives utter the phrase "SimpliFares" anymore. Since overhauling its fare structure in early 2005—moves other legacy carriers largely adopted—Delta undid key components by eliminating fare caps, raising the number of fare categories and, more recently, upping change fees.

Airfare analysts said the program's precepts largely are dead industrywide, as average fares have climbed steadily following the program's introduction and fare complexity remains. However, certain types of business fares have come down from their peaks and Saturday-night stays—though still in existence—have significantly declined, although they were replaced in some cases by other minimum-stay requirements, consultants and airfare analysts said. Corporate contracts renegotiated in the wake of SimpliFares largely have maintained their structures.

SimpliFares initially brought about a seismic shift in the corporate travel industry, with Delta lowering the spread between the highest walkup fares and lowest discount fares, reducing the number of fare classes to eight, capping per-way fares at $499 in economy and $599 in first class and reducing the change fee to $50 from $100, among other moves, according to a 2005 analysis by Eclipse Advisors, now part of American Express Global Advisory Services.

Some of the initial tenets have eroded. Delta initially raised fare caps by $100, citing high fuel costs, and since has done away with the concept. It modified the spirit of Saturday-night stay requirements from never to rarely, increased the number of coach fare buckets and last month raised its change fee to $75—higher than the SimpliFares $50 charge, but still below the pre-SimpliFares level of $100.

Topaz International president and CEO Brad Seitz said fare auditors at the firm "agree in theory that the ideals have gone away, that there are a lot of various fare categories, higher fares and some Saturday-night requirements—I just booked one for myself."

Delta reduced the number of fare categories, but industry watchers said that, industrywide, complexity has returned to the system. Delta last week said the number of coach fare buckets now generally trend between eight and 10—more than envisioned in the initial SimpliFares, but fewer than before SimpliFares.

"One of the big benefits of SimpliFares was it reduced the number of fare classes used, but over time—being a very competitive market—carriers have slid back into the old pattern," said Advito vice president for the Americas Bob Brindley. "It's not that everything is back to where it was before, but it's gone back in that direction."

"SimpliFares in terms of 'simple fares' don't exist anymore," said TCG Consulting senior consultant Barry Rogers. "There are still scores of fares in every market and lots of buckets and all that used to go on."

Among revisions Delta made to the program, the caps were the first to go. Citing mounting fuel expenses, Delta in July 2005 raised the caps on "full-fare walk-up and some 3-day advance purchase fares" to $599 for one-way coach and $699 for one-way business. Delta said it no longer embraces the capped fare concept.

"There's really no cap in place to the original extent," said Robert Mann, head of aviation consultancy R.W. Mann & Co. "With limited exceptions, the walk-up fares are still somewhat lower than they were in the bad old '90s. That's not because anyone wants them to be lower, but because the low-fare carrier presence is just so much more pervasive now than at this point in the prior business cycle."

Delta tweaked its language from "customers never have to stay over a Saturday night" in 2005 to the current claim of "no Saturday-night stay requirement on many fares," but the requirement has waned throughout the industry, except in secondary markets and on routes where competition is limited.

Airfare tracker and airline consultant Terry Trippler, head of Minneapolis-based TripplerTravel.com, said the elimination of Saturday-night stays has "pretty much held hub to hub or in the major cities, but when you get to the secondary cities—Huntsville, Sioux Falls, Madison, Wis., and so on—you'll still see some Saturday-night or one-, two- or three-night stay requirements. US Airways, on the other hand, has pretty much completely done away with it. I don't think there is a Saturday-night stay on US Airways."

Analysis of 4,000 fares in the top 40 routes for the "big six" domestic carriers by airfare consultancy Bob Harrell and Associates found fewer Saturday-night stay requirements now than before or even immediately after SimpliFares. According to data pulled last week, 3 percent of inventory held Saturday-night stay restrictions, compared with 7 percent six months after SimpliFares was introduced and 16 percent six months prior to the fare simplification program's launch.

"At a real high level, after SimpliFares we did see a reduction in average fares for a period of time," said Advito's Brindley. "Then, with all the price increases over the last 18 months, that curve moved back upward and now fares are at higher levels than they were immediately after SimpliFares. We're also seeing, and the carriers are also seeing, that when they set their high, mid- and low ranges, things that used to be low-range are creeping into midrange, which may have some benefits from a corporate discounting perspective this year versus last year. From a pricing perspective, everything is clearly moving up."

Though 2005—the year Delta introduced the program—brought a new six-year low in average annual domestic fares, according to the quarterly American Express Business Travel Monitor, data show airfares grew quarter over quarter that year (BTN, April 3, 2006), and generally have continued upward to the present.

Coincidentally, airfares have risen at a greater pace at the birthplace of SimpliFares. Delta in the summer of 2004 introduced SimpliFares at its Cincinnati hub, prior to a nationwide rollout the following January. According to the most recent data from the Department of Transportation's Bureau of Transportation Statistics, released in July, the highest average fares for the first quarter of this year were in Cincinnati, also home to the largest year-over-year fare increase at 14.7 percent. Delta and its connection carriers hold about 80 percent marketshare at the airport, according to BTS.

Delta, however, last week said it has lowered leisure fares "in about 60 percent of nonstop U.S. domestic markets served from Cincinnati after completing a review of fares at its second-largest hub."

"On average, the reductions offer customers a 20 percent savings on advance-purchase leisure fares to some of Cincinnati's most-popular destinations, including select cities in Florida, the Northeast and along the West Coast," the carrier said in a statement last week.

While a Delta spokesperson said the phrase "SimpliFares" has left the Delta lexicon, the carrier's primary goals still are held. "It's more about a way of doing business, and we have pretty much maintained the original tenets of SimpliFares—really simplifying the faring process. We're still committed to that, but we don't necessarily call it SimpliFares any longer."

Immediately after fare reform, many buyers quickly renegotiated deals with preferred domestic carriers, many of which at least partially matched the new fare regime (BTN, Jan. 17, 2005).

"The airlines restructured all of their corporate deals as a result of that. While those new structures have adapted with time, they really remain in place," TCG's Rogers said. "The biggest thing is that you don't see the outrageously expensive business fares anymore, where airlines were giving 30, 40, 50 percent discounts off. They almost were a penalty for people who had to fly those airlines without a deal."

Rogers said corporate discounts followed fares downward at the time, but both fares and corporate discounts now are going up.

"The deals have changed," Rogers said of SimpliFares' impact. "It used to be that if a company had a contract with a particular airline, it could pretty much rely on that airline being the cheapest option in most markets. Therefore, compliance was relatively straightforward. With fares coming down and discounts coming down, then there were a lot of times when a carrier without a discount would just have a lower fare than your contracted carrier with a discount. That has made compliance a challenge for a lot of companies."

Though corporate travel buyers continue to gripe about the complexity of fares and airline pricing, most airline analysts and consultants said another attempt at dramatic domestic fare restructuring is not imminent. Mann said the rise in sophistication of airline revenue management and analytical tools makes moot such endeavors as fare caps or doctrinaire fare rules.

"To a certain extent, you don't need any rules if you exercise incredibly insightful revenue management practices," he said. "By doing the bid-and-ask and by doing the O&D pricing philosophy, I think the network guys are able to say, 'Who cares about restrictions as long as I'm selling at the right prices? I don't need artificial stuff as long as I can use the right software to price properly.' "

However, Trippler expects a day of reckoning and another round of fare reform yet to come.

"I think we're going to see a major fare overhaul coming that will make SimpliFares look like a Sunday school picnic," Trippler said last week. "Right now the system is broke and it needs to be fixed. The basic problem is we've got people paying $1,800 for a ticket and other paying $198 for a ticket, and they're being treated the same. The airlines are seriously going to have to consider changing to maybe a three-tier fare system, where the lower tier is almost a standby—because at 90 to 95 percent load factors, these aren't working. I think that's going to come sooner than later."

Though Trippler contends carriers are exploring such modifications to faring systems, the airlines—ever skittish about discussing fare changes—are mum on plans.

"The history of any of these fare simplification things is someone tries it and it erodes," said Management Alternatives vice president John Heilner. "For this one, its basic tenets have lasted longer."
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