U.S. airlines are simplifying their pricing structures in secondary hubs as overall domestic fares remain at their lowest levels in years. The more recent formal changes include American Airlines' fare restructuring in Miami and Continental Airlines' ongoing adjustments in Cleveland. Wholesale changes to corporate contracts have not yet occurred outside specific markets, but more buyers soon may see altered contracts as carriers lower walk-up fare levels, redefine more fares as ineligible for corporate discounts and close the disparity between the highest and lowest prices.
"It will be very interesting next year as major carriers shrink pricing into a narrower band of fare offerings," said WorldTravel BTI executive vice president Dee Runyan. "Corporations are used to asking for 20 percent or 30 percent discounts, so there will have to be a mindset change."
Such change already is underway in Cincinnati, where Delta Air Lines completely overhauled its fares and adjusted corporate contracts to match new market realities
(BTN, Sept. 6). Similar developments are apparent in many US Airways markets as the airline reworks pricing designs
(BTN, Oct. 4). American Airlines last week would not comment on how new Miami pricing would impact corporate agreements covering travel to and from that market.
"The airlines know they cannot fall into this hole again of changing pricing structures but holding onto previous corporate discount levels," said Laurence Smith, a corporate travel advisor and attorney with Wolff & Samson in West Orange, N.J.
"Corporate discounting is completely out of control. They should blow it up and start it over again," added Robert Mann of R.W. Mann & Co., an airline industry consulting firm in Port Washington, N.Y. "Corporate discounts would not be particularly meaningful if fares were structured the way Miami is going."
American's new pricing structure in Miami eliminates Saturday-night stay and minimum-stay requirements on some advance-purchase fares, limits coach fare levels in each market, caps all one-way coach fares at $699 and cuts change fees to $50. AA reduced many walk-up fares by 50 percent or more.
"It is no secret people are going to Ft. Lauderdale for the low-cost carriers," said an American spokesperson. "We want to bring them back to Miami."
"A key metric will be how the industry responds," Mann said. "Northwest Airlines has some very sharp pricing people, and what they do on the Miami-Detroit or Miami-Minneapolis routes will be a bellwether as to whether this is a good package."
A Northwest spokesman last week confirmed the carrier had matched American's pricing on those routes.
Its partner, Continental Airlines, recently slashed business fares to both Boston and New York LaGuardia from its Cleveland hub and removed certain ticketing restrictions, as it previously had on other routes between Cleveland and some business markets.
"Sixty percent of our markets today have a very different fare structure than they did five years ago," said incoming Continental CEO Larry Kellner
(see story). "That the fare structure in our markets is changing rapidly tells you the business is changing rapidly. In many markets, you are seeing convergence both in the fare structure and what the business traveler expects."
Yet, legacy airlines largely still have not formalized simpler fare structures in their primary hubs. "Their pricing people are not convinced it makes sense, from a revenue standpoint," said Kevin Brady, vice president of travel and executive services at Merrill Lynch.
"Why adjust pricing in a market if passengers are paying the going rate?" asked the Carlson Wagonlit Travel Solutions Group, in a recent benchmarking and intelligence advisory. "Because carriers are under severe pressure to generate revenue, they are often reluctant to deploy widescale price restructuring and surrender millions of dollars in planned revenue."
Corporate clients already are paying comparatively low airfares. American Express said the average fare paid by its corporate travel clients in the third quarter came in at a five-year low of $217 one-way, down 10 percent from 2003.