Buyers: JetBlue Wins Big In The Smaller Carrier Sector

JetBlue Airways this year came into its own in the 2003 Business Travel News Annual Airline Survey. In just its second year appearing on questionnaires, the New York-based discount carrier finished first in the small carrier segment, beating out by a fraction of a point the perennial small segment champ Midwest Airlines. AirTran Airways and Frontier Airlines, again third and fourth, finished with improved scores, while ATA Airlines for the sixth consecutive year placed last among small carriers.

With the exception of ATA, all smaller airlines secured higher year-over-year scores from travel buyers. Indeed, corporate travelers and their increasingly cost-conscious managers have had a growing appetite for the services offered by discount airlines. Such lower-cost operators, however, provide to travel managers both opportunity and challenge.

For example, each of the five smaller airlines—including Midwest, which is not defined as a low-cost carrier—easily exceeded the industry average in overall price value, while unsurprisingly suffering in categories related to negotiating, corporate salesforces and data. In some cases, these airlines do not even offer certain travel management services. That scores for pricing flexibility in many cases beat the major carriers, for example, certainly is more the result of low fares—and the perception of low fares—than actual openness to negotiations.

Usage numbers still lagged behind the major network carriers—ranging between 14 percent and 22 percent—due to smaller networks. Those networks, however, are growing much more quickly than those operated by the Big Six and some carriers in the smaller segment are becoming much more of a factor in many corporate travel programs.

"Load factors are improving, and everyone is trying harder," said Lowell Miller, Frontier Airlines director of sales and distribution. "These airlines realize that, because of the commoditization of the marketplace, it is vital to keep customers."

J.P. Morgan Securities analyst Jamie Baker said such large-scale changes in the industry favor the crop of smaller, lower-cost carriers. "Whereas many a network management still considers lounge access, a branded credit card and an international alliance to define 'full service,' most passengers consider those full service airlines to be the ones with new planes, TVs and consistently low and understandable fares," he said.

JetBlue's 2003 survey performance included higher year-over-year scores in six of 10 categories. It beat all of its small carrier peers in complaint/problem resolution and achieved the survey's highest score for any one category: a 3.98 for overall price value. What the airline lacks in willingness to negotiate is made up by listening and reacting to customer feedback, according to director of sales Noreen Courtney. "As we have added so much transcon service, we heard that legroom was a little tight," she said, "so now we are in the process of taking out a row and extending the seat pitch to 34 inches." Courtney added that the airline's simple fare structure, low change fees and transferable credits helped propel JetBlue's scores in some categories, while a very small salesforce may have negatively impacted other categories.

Despite dropping to second place after a three-year run atop the small carrier segment, Midwest Airlines secured higher year-over-year scores in six categories, improved its overall score and beat all small carrier competitors in five areas. Though it is in the process of re-engineering its operations to lower costs, the airline still excelled in services/amenities and special VIP services. A big improvement this year came in quality of airline communication, and Midwest easily surpassed the industry average in complaint/problem resolution.

"Midwest always has had a good reputation on responding to problems, with individual travelers and corporate accounts," said John Heilner, vice president of Management Alternatives in Princeton, N.J. "It is in their culture."

Orlando-based AirTran Airways in 2003 achieved higher marks in eight of 10 categories versus last year, pushing its overall score ahead of rival Delta's to 2.97. Its 3.11 score for flexibility in transient pricing beat all major carriers despite its no-discounting policy, likely a result of travel buyers' pleasure with AirTran's ability to force Delta, and other major carriers, to lower their fares.

AirTran in the past year created an elite level for its frequent flyer program, expanded its salesforce and rapidly grew its network.

Director of sales Bill Howard added that AirTran's salesforce, despite the relatively low score for sales rep empowerment, "can waive stuff and do a lot of other things on the spot. They are empowered to do a heck of a lot more than the big guys."

Meanwhile, AirTran's 3.72 score in overall price value lagged only Southwest and JetBlue.

Respondents gave Denver-based Frontier Airlines higher year-over-year scores in six categories—some noticeably higher—generating an overall score of 2.92, well above last year's 2.65 mark. Strong improvement came in pricing and service categories. In flexibility in negotiating transient pricing, for example, Frontier pulled off a 3.15—the highest among all 14 carriers included in the survey.

Miller attributed some of the improvement to a simplified fare structure implemented in February and "very aggressive discount negotiations" that target tailored, rather than standardized, corporate programs. "With point of sale discounts, all buckets are in play," Miller explained. "And we don't ask for exclusivity." Frontier offers a rare mix of low fares made possible by costs below major carriers and willingness to negotiate on price with corporate buyers.

The airline also showed a sizable score increase for data availability, which Miller attributed to more proactive work within a revamped revenue accounting system.

Frontier continued to be plagued by low scores in the sales rep categories, resulting partly from a thinly spread salesforce. The carrier, however, on Oct. 1 added four new sales associates, effectively doubling its corporate salesforce. Meanwhile, Frontier experienced a big jump in overall price value and finished fourth of all the carriers in the survey, behind a trio of low-cost carriers but well ahead of both the industry average and Denver rival United Airlines.

ATA Airlines, based in Indianapolis, again finished last among small carriers. It was the only airline in the group to receive a lower overall score versus last year, driven by deteriorating marks in five individual categories. ATA suffered a particularly large decline in complaint/problem resolution.

The results were not all bad. The carrier, which now has a formalized corporate travel program offering discounts on certain fare types, secured a much higher score for flexibility in transient pricing, rising from 2.31 to 2.83. It also pushed higher its score for overall price value to 3.47, easily surpassing the industry average.