Sixth Biz Fare Hike Arises

<B>Sixth Biz Fare Hike Arises</B>

By David Jonas

The ominous beat drummed by irritable labor groups goes on for the nation's largest airlines as reverberations from the landmark United Airlines pilot contract continue to echo throughout the airline sector, including a significant new business fare hike initiated last month by United intended to offset labor costs.

For travel buyers, bad news from United has become an annual autumnal affair. This fare hike follows three consecutive years of United-led commission cuts or caps announced as the mercury dips, leaves change color and travel buyers scramble to formulate budgets for the coming year.

The full coach walk-up fare increase--generally $50 one way for flights under 1,500 miles and $100 one way for longer ones--primarily affects last-minute business travelers and equates to an immediate price increase near 8 percent. Most major carriers followed United's lead, except contrarian Southwest, which, as usual, didn't match the year's sixth broad fare increase.

Some transcontinental routes and others in competition with low-fare carriers, notably Southwest, were excluded from the otherwise broad hike. United also shifted all pre-existing walk-up fares into a "lightly capacity-controlled" three-day advance purchase category.

According to UBS Warburg airline analyst Sam Buttrick in a research note to investors, the newest hike, "excluding certain value-pricing and ticket tax anomalies, may be the largest single dollar increase in business fares ever." Buttrick added that the hike was not based on demand, but "potentially upward spiraling labor costs."

Indeed, United's awful operational performance this summer and waning public confidence would otherwise have made it an unlikely aggressor in any fare hikes, but Onetravel.com airline expert Terry Trippler agreed that labor is key. "I think United is striking now, knowing they are going to incur serious increases in labor costs," he said.

Travel managers contacted by BTN also recognized the impact of labor this time around and are expecting more to come. One even called it, "the tip of the iceberg." But for the time being, many are concerned about meeting budgets for the remainder of 2000 since the end of the year can be a time to tighten belts.

Even so, with the latest hike affecting only last-minute travel, Buttrick said that "most passengers can easily avoid the full fares with a modicum of talented travel management."

United won't be the only carrier watching its labor costs jump. Pilot groups at several other major carriers have stepped up efforts to bring their contracts closer to that now enjoyed by their United counterparts. For example, the Delta Air Line Pilots Association and carrier management jointly filed for federal mediation for their contract talks, which now have extended seven months beyond the amendable date. Both parties requested 90 days of mediation, slated to start this past Friday. Following a 30-day cooling-off period usually imposed once a federal mediator declares an impasse, the new deadline would become April 1, 2000.

Management's latest offer included an initial 17.5 percent pay hike and future raises linked to profits and other performance factors. DALPA, however, rejected that initial offer and said in a statement that its pilots "have lived under a concessionary agreement for almost five years and are ready to share in the corporate prosperity our sacrifices helped create."

At Continental, the Independent Association of Continental Pilots announced a formal request to open contract negotiations 14 months ahead of schedule. According to IACP, the United contract left Continental's pilot salaries lagging 39 percent below the industry-leading rates. In a formal letter, IACP president Capt. Pat Burke asked the airline to address what he called a disparity between Continental's load factors, profitability and customer loyalty with pilots' pay and benefits. Under the current contract, Continental's pilots will receive a 1 percent raise next year. Reopeners on the current contract are not due until July 2002, but IACP, which represents 5,400 pilots, is asking for contract proposals as early as May 1, 2001. Carrier management has said it will visit the pilot request after it finalizes unrelated negotiations with a Teamsters union.

Meanwhile, Northwest Airlines and its mechanics, represented by the Aircraft Mechanics Fraternal Association, are involved in a bitter contract dispute that prompted management to obtain a temporary restraining order preventing the union from engaging in a work slowdown.

Back at United, an ugly situation with the International Association of Machinists District 141M, representing the airline's mechanics, also resulted in a restraining order. In federal court, carrier management successfully obtained the order preventing the union from engaging in "concerted job actions" during the holiday period, including abnormally high maintenance cancellations and delays. The order followed weeks of increased operational disruptions that United claimed was the result of an intentional slowdown by mechanics.

The restraining orders at both United and Northwest mean there will be no strikes before Christmas, but management teams at both are seeking further action, claiming their mechanics have violated the restraining orders.

United's 25,000 flight attendants, represented by the Association of Flight Attendants, also are embroiled in a contract dispute, accusing the carrier of paying poverty-level wages.

In all, there are more contract disputes throughout the industry than at any point in recent memory. And despite a recent and slight softening of airline load factors, traffic still is near record levels and planes generally are full. As a result, labor unions have even more leverage. The mere threat of a slowdown in the current environment has tremendous impact in the market since full flights limit the ability of other carriers to reaccommodate displaced passengers. Though fuel continues to be a nagging problem for carriers and buyers alike, labor promises to be the fly in the ointment in 2001.

That this newest fare hike affects only last-minute travelers is of little comfort to buyers who have seen increases in most other fare types all year long. Year-over-year percentage increases, as measured by the American Express Domestic Airfare Index Composite for the month of September, reached double digits in all four categories. Full coach rose 12 percent, to $1,226 roundtrip, while typical business fares jumped 13 percent, to $1,100 roundtrip, and average fare paid grew 10 percent, to $624. Lowest discount fares increased 23 percent year over year.

"The simple economics are that airlines are pressing the envelope for price increases to see what it takes for travelers to cut back. Loads are high, for now, and it is all about supply and demand," said Steve Shook, vice president of strategic sourcing for Carlson Wagonlit Travel's solutions group. "It strengthens the need for more sophisticated and robust travel management strategies and optimizing spend because it won't get better any time soon, especially if the economy takes a turn for the worse.