Surprising few, Delta Air Lines late last month formally announced a new policy that reduces or eliminates discounts on lower fare classes for all corporate accounts. In letters to clients, Delta said the decision, which follows similar moves by competitors, was the result of "dramatic reductions in published fares, uncertainty for the industry and fundamental changes made by corporations."
Contrary to many reports, Delta is not completely scrapping across-the-board discounts on Q, K, L, T and U inventories, but, in some cases, simply will reduce them, depending on each client's travel patterns, volume and share on Delta. Sources indicated contractual changes, in many cases, will take effect Aug. 1. The carrier supported its move with clear trends in the marketplace: Domestic published fares are down 20 percent in the past 20 months, and its top 85 corporate accounts in this year's first quarter spent 35 percent less on air travel than in the first quarter of 2001.
One Atlanta-based company will take a $40,000 per year hit just on the Q fare increase. "It didn't affect us any further because our agreement already did not include discounts on K and L fares," said the company's travel manager, speaking on the condition of anonymity.
Other sources confirmed Delta previously had cut out corporate discounts on lower fares, a strategy also employed by Continental, American and United airlines. But Delta's policy falls short of what Northwest Airlines did in November, when it eliminated all corporate discounts on lower bucket fares (BTN, Nov. 12, 2001).
Whether discounts are removed from the five fare types, or to what degree they are reduced, is dependent on several factors.
Yet, Phil Dunphy, Pfizer Inc. corporate travel manager, suggested the end result could be positive for certain companies. "Airlines cannot survive by giving hefty discounts on deeply discounted fares," he said, "but for the higher-priced tickets, bigger discounts may become available."
As expected, some throughout the industry criticized Delta's decision. "This says to me that Delta is in the group of airlines that would expect a return of pricing power they had in the late 1990s and now is looking to optimize revenues in the short term while the economy rebounds," said Business Travel Coalition chairman Kevin Mitchell. "But I don't think it will work. It is tacit evidence of how convoluted the fare structure is to begin with."
"It is a way to make corporations pay more," said Scott Kirby, executive vice president of sales and marketing at America West Airlines, the only major U.S. carrier thus far to fundamentally alter its pricing structure (see story, page 3). "It is consistent with the historical model of gouging the business customer as much as possible."
Meanwhile, Delta's letter to corporate clients also stated the carrier is "exploring opportunities" to provide greater access to Web fares. No timetable or specifics were included. Delta already allows clients to access negotiated fares through a special corporate booking page on its Web site.