Seeking to boost revenues and offset high jet fuel costs amid a potential economic slowdown, some U.S. airlines in recent months began selling tickets that offer more flexibility or extra perks--for a higher price. At the same time, other carriers in many markets re-introduced restrictions meant to keep many lower fares out of the hands of business travelers.
Determined to offer more value for a higher price, AirTran Airways, JetBlue Airways and Southwest Airlines have added new choices to their fares. Following a test with corporate clients using the CompanyBlue booking portal, JetBlue now offers refundable faresthrough direct sales channels and "all" global distribution systems. The new fares "allow customers to make unlimited reservation changes, including name changes, or opt for a full refund anytime prior to the flight's departure." Depending on the market, the new fares cost $50 to $100 more than JetBlue's previously highest fares.
JetBlue CEO David Barger, speaking this week with analysts and referring to observations from the first day refundable fares were made widely available, said, "It is incredible to see what people are looking for in terms of flexibility in their travel planning." When asked whether refundable fares would allow the airline to begin overbooking flights, Barger said there are "no plans" to do so.
Barger also noted that the new fares represent "the first of several initiatives we intend to announce in the next couple of months, as we work to diversify our product to attract high-yielding customers." He hinted at "an enhanced front-cabin product" to be introduced in the second quarter but provided no details.
AirTran Airways recently introduced optional, advance seat assignments. Passengers now can "pay $5 for certain seats, $20 for an emergency exit" row seat, according to Kevin Healy, AirTran senior vice president of marketing and planning. AirTran passengers normally receive their seat assignments at check in; the new option allows them to request one at the time of booking. The airline said the "noticeable revenue improvement" has equated to a few million dollars per month.
Southwest Airlinesin November raised eyebrows when it introduced Business Select fares, guaranteeing customers would be among the first to board. The refundable fares also provide bonus loyalty program credits and a free inflight cocktail. Between the Nov. 8 introduction and Dec. 31, Business Select generated incremental revenue of $7 million and helped Southwest push up by two points the percentage of customers buying full fares--as opposed to restricted or discounted sales fares--to 27 percent in the fourth quarter, according to Southwest CFO Laura Wright.
"We really wanted to create a new and exciting product that would be a differentiation from anything else we are offering," said Kevin Krone, Southwest vice president of marketing, sales and distribution. "It is truly a value add, which mostly justifies in everyone's mind the need to pay for it. It is not a veiled attempt to just raise fares and call it a different name."
While these airlines are diversifying their fare offerings in the hopes that some passengers will pay more for added perks or conveniences, other airlines have reverted to old strategies that dissuade travelers from booking the lowest available fares. The intention is to segment business travelers and more price-sensitive leisure travelers by rebuilding proverbial fences around those lowest fares.
Executives at Continental Airlines, Delta Air Lines and United Airlines--speaking during conference calls with analysts and news media--said their carriers since late 2007 have required Saturday-night stays or minimum stays for certain fares in a growing number of markets.
For obvious reasons, the Saturday-night stay requirement particularly has frustrated business travelers over the years. To the delight of the travel management community but to the chagrin of its competitors, Delta ditched Saturday-night stays as part of its SimpliFares initiative in 2005. But after initially telling customers they never would be forced to stay over a Saturday night at their destination to obtain the lowest fare, Delta backtracked by the end of that year and began reapplying the restriction in certain spots.
Now, the Saturday-night stay requirement is back in play on a wider scale, though not to the same degree. Generally, airlines appear to be using the tactic on secondary routes--which may have less competition than hub-to-hub flights and other services between major business centers.
Delta chief of network and revenue management Glen Hauenstein said that the airline, since "moving forward" from the SimpliFares "experiment," has been establishing ticketing rules that are "consumer-friendly yet revenue-maximizing ... Indeed, in certain markets, Saturday-night stays seem to be the most effective defense. We've put Saturday-night stays on some fares, but we have kept the alternative of staying multiple nights at the same time."
A Continental spokesperson said the airline in the fall began applying Saturday-stay and three-day stay restrictions in about 160 markets, primarily nonstop routes from hubs.
United chief revenue officer John Tague said the airline's segmentation strategy "goes beyond" the minimum stays and Saturday-night stays that it has been adding. "We are segmenting markets, flights and customer types to much greater extent in our revenue management than we ever have before," he said. "We see significant opportunities in the future to do that."
Though all airlines are trying to improve revenue management techniques, some have stayed away from the Saturday-night requirement.
"We have not done that anywhere yet," said US Airways president Scott Kirby, "and frankly we have not seen that happening around the industry."
"It's not something that we're considering," added AirTran CEO Robert Fornaro. "We do have some segmentation based on advanced purchase and other attributes. We can manage through that better than adding fences that ... cut off business travelers from a low fare."
Airfare watcher Terry Trippler, who has observed the Saturday-night stay requirement "trickle back in" on secondary routes, suggested that although it may take a while for it to return to full prominence, "someone will have to do something. I expect it to see a major change in the fare structure, and [the airlines] will have to do it by the summer."