The airline industry this spring is buzzing with speculation about the next big step forward in airfare reform. Such talk has centered on American Airlines and US Airways but since neither carrier would depart from age-old airline protocol of not commenting on pricing, it may turn out to be nothing more than what UBS analyst Sam Buttrick called, "seasonal rumors." However, there is evidence to suggest big changes are afoot, and travel managers already are assessing the potential impact on their air programs.
Industry observers suggested that the Saturday night stay restriction, which already has been nearly removed in many West Coast markets, is nearing extinction. "With [United's] Ted at O'Hare, the Saturday night stay will collapse in Chicago and as Chicago goes, so goes the Midwest," said airfare analyst Terry Trippler of Trippler & Associates. "By peak summer, the Saturday night stay really will be gone from the domestic system."
In its battle to fend off Southwest's advance, US Airways already transitioned to a simplified fare structure, including the removal of Saturday night stay requirements, on routes from Philadelphia on which Southwest and other low-cost carriers soon will begin service.
Given the growing availability of alternate business fares that do not require a Saturday night stay, industry observers and travel managers now are watching for signs of compressed fare levels. The gap between the higher tiers and the rock-bottom discount fares has closed in the past year, but most major carriers still cling to structures with numerous price points and walk-up fares several times more than restricted fares.
Sources, including Continental president Larry Kellner during a conference call this month, indicated US Airways may be moving toward a more widespread simplified fare structure. Whether or not US Airways goes systemwide with a cap on all one-way domestic fares—as has been theorized by executives at competing carriers—Kellner said it is difficult to estimate the impact of low-fare competition present in all Continental markets. "It sure would not be positive, and there definitely would be a short-term revenue hit," he said. Suggesting that Continental is not ready to jettison full Y fares, at least at current levels, Kellner added that corporate clients "value availability over price" when it comes down to the last few seats on a given flight. "So we will continue to price how we see best to maintain the franchise."
Bob Harrell, of Harrell Associates, last month during the Corporate Travel World conference, predicted that major airlines won't fully simplify their fare structures anytime soon. "Mainline carriers will build more hybrid business fares into the middle of the structure, as every major has already done, but they always will have sky-high fares out there."
Nevertheless, speculation continues to swirl in the direction of American Airlines, whose newest domestic partner, Alaska Airlines, this spring transitioned to a simplified fare structure
(BTN, March 15). "To see American do a fare restructure now fits perfectly with their plans to again become The American Airlines," Trippler said. "If Alaska does well, it won't surprise me to see AA roll it out."
One travel manager said AA would want to lead rather than follow any large-scale pricing initiative among the Big Six. "It would really force United and Delta to revisit how they price," he said.
At this point, few believe a simplified fare structure at the largest carriers would include a complete elimination of corporate deals, though the impact could be dramatic. American's infamous Value Pricing initiative of the early 1990s to abolish corporate discounts quickly collapsed.
"The perception from the sourcing standpoint is that if the market rate is X, we should get something for giving the airline Y," said Cindy Heston, manager of worldwide corporate travel for Thomson Corp. in Indianapolis, speaking at Corporate Travel World. "We want lower than market rates if we deliver volume. Airlines need to be careful about where they set the market rate."
Steve Shook, vice president of strategic sourcing at Carlson Wagonlit Travel, agreed: "For bigger carriers with a big base of corporate customers, it is a challenge in resetting the baseline, as corporates want still lower baselines."