<H1> Fare Gap Widens</H1>By Jay Campbell
Corporate travelers are subsidizing leisure discount fares more than ever after the major domestic airlines last month hiked full fares by 10 percent but continued to offer short-term bargains for travel during specified times.
"While the carriers are raising all base fares, the vast majority of leisure travelers are now taking advantage of special fare sales and are no longer paying the retail excursion rate," said Terry Trippler, editor of Airfare Report. "That means the gap between what most business travelers and leisure travelers pay is widening."
On Sept. 3, the one-way full coach fare from Chicago to Los Angeles on American Airlines was $829, with a seven-day advance purchase round-trip fare of $944 and a 21-day advance round-trip of $648. However, American also offered a limited-time sale of $382 for a 14-day round-trip advance and $198 for a 21-day advance.
According to the July American Express Domestic Airfare Index, typical business fares increased 6 percent over the past year, while discount fares dropped by 11 percent. Had the ticket tax been included, the typical business fare would show a 17 percent increase with the lowest discount dropping 2 percent.
"Those numbers would imply that the gap is widening," said Bob Harrell, airfare consultant for American Express.
Typical business fares in hub cities and other major business capitals were hit hardest in the past year, including increases of 11 percent in Atlanta, 12 percent in Chicago, 8 percent in Denver, 15 percent in Detroit, 19 percent in Newark and 11 percent in Philadelphia. Meanwhile, lowest discount fares in those cities dropped 25, 14, 6, 17, 4, and 7 percent, respectively.
Such sales, which pile on even more restrictions than typical excursion fares and are nearly impossible for business travelers to take advantage of, help the airlines fill otherwise empty seats by charging as little as 15 to 20 percent off standard unrestricted fares.
Behind it all is a tool that airlines have put to better use in recent years: yield management. This technique enables better capacity and schedule planning, which allows the carriers to determine what services to offer where, when and at what price. The airlines can then tinker very precisely with the arrangement of seat inventory and fare structures to draw maximum profit from both the business and leisure traveler.
While American and United have always been the leaders in this area, "several other airlines have dramatically enhanced their yield management over the last year," said Harrell. He noted that Continental, Delta, Northwest and others have recently purchased "hot new systems."
Yield management also helps the carriers come closer to charging what the market will bear. However, business travel industry advocates think the carriers have come a bit too close with last month's increase.
"It's becoming more important for us to make the airlines aware of how much we really are purchasing," said National Business Travel Association president Judie Shyman. "We're the customers who pay their highest fares."
"This is an egregious price increase," said a statement released by the Business Travel Coalition-a new travel managers' organization, formed by Business Travel Contractors Corp. members and led by Kevin Mitchell, that will use a private site on the CompuServe computer network to foster debate and seek consensus among travel buyers (<I>BTN</I>, July 29). "In what other industry would a supplier implement an unsupported multimillion dollar increase for its best customers? Corporations have become numbed to this type of supplier behavior, and the airlines have learned they can operate this way."
The impact is not just on the bottom line. Yield management also allows the carriers to improve their load factors (read: crowd their airplanes), and it indirectly influences seat assignments.
What was once a great benefit of paying more-sitting next to an empty seat or even enjoying an upgrade to the front of coach-is no longer a guarantee because of high demand. Some airlines reserve the best seat assignments only for top frequent flyers, not top payers.
"The airlines have less incentive to fill seat requests as load factors increase," said Richard Eastman, president of the Santa Ana Heights, Calif.-based Eastman Group. "So they're removing their most highly prized seats from open inventory and protecting them for frequent flyers."
"Travel managers and our travel agents look stupid because we can't get preferred seating for our people," said Peter Buchheit, chairman of the NBTA airline committee and director of travel and meeting services for Black & Decker. "And of course, the travelers get to the airport and there are plenty of good seats available because the airlines have kept those seats back to distribute themselves."
While airlines have emphasized giving the best seats only to preferred frequent flyers over the past three to four years, sources said this summer has been particularly bad.
"It's worse than ever," said Mary Atchison, a travel agent at Greensboro, N.C.-based Metro Travel. "Over the last six months, Delta has been going so far as to block off the first half of the plane." She said that while American and USAir are "not that drastic," United "has always been a nightmare to get a seat assignment because you can do it 360 days in advance."
It's at times like these that travel managers and agents have to get creative. For example, some travel managers said seats are sometimes available in one distribution channel-a Website or online booking system-that are not available in another, such as the travel agent or CRS. In addition, agents booking Northwest were at one time getting away with inputting someone else's top-level frequent flyer number to book passengers into a better seat. Northwest put a stop to that by requiring that the name match the number.
The solution to the problems of high fares and restricted seat preferences that the airlines prefer is, of course, negotiating directly. However, even in some of the most progressive deals, the ball is still in the airlines' court.
"The fare increase is vivid evidence of the lack of true control corporations have over the travel management process," the Business Travel Coalition said. "It should be clear by now to corporations that net fares tied to a percentage off 'Y' is a lose-lose proposition. In current deals, airlines improve the corporate discount by a couple of points, transfer the responsibility for agency compensation and then increase their prices by 10 percent."
If that sounds grim, it does get worse. A number of corporations are reverting to a highly unattractive solution to save some money on airline tickets and perhaps get a better seat: booking in advance.
"Corporations are forcing their travelers to buy lower-fare tickets, which often come with penalties for changing an itinerary," Eastman said. "The ultimate result is that fewer travelers change their itineraries and there is less float in seat inventories."
But even booking in advance might not result in a good seat assignment-and, ironically, the practice is the very reason the airlines have been able to offer the sales that have widened the business-leisure fare gap. As more business travelers plan ahead and make use of excursion fares, the higher they get. Leisure travelers won't pay them, so better sales are offered.
Asked whether the number of special sales this year is consistent with how many were offered in the past, Trippler said, "it's not even close. This year, there have been more sales than I've ever seen. I'd bet that this year there have been more already than in 1994 and 1995 combined."
While there was no statistic available on the number of sales, the Washington D.C.-based Airline Tariff Publishing Co., which processes each fare change made by the carriers before it is inputted into CRSs, said that as of July there were 58 percent more changes made to fares than there were in the same period last year.
American Express' Harrell agreed with Trippler and noted that the ATPC's figure is likely a reflection of more sales. "The more sales become a permanent fixture, the closer they'll come to being the standard lowest fare paid," he said. And any additional pricing standard would add to the already confusing nature of airline pricing-indeed bad news for corporate buyers and travelers.