Competitors, analysts and other industry observers, citing booking data and in-depth analyses, publicly and privately questioned United Airlines' claim last week that its new business fare structure is generating between $20 million and $25 million in incremental monthly revenue. Other airlines have said the competitive match to United's new fares erode their own monthly revenues by more than $10 million
(BTN, Feb. 10)."Incremental revenue is in the eyes of the beholder," UBS Warburg analyst Sam Buttrick said. "We have not seen persuasive data in either direction, but our view remains that any substantial reduction in business fares is revenue-dilutive in the short term but a necessary long-term investment in business travel."
United not only stood by its numbers—insisting an increase in passenger volume has more than offset the lower fares—but also suggested the fares soon could be brought to more markets. "What we are looking at is the revenue performance we have seen in the markets with the new fares versus last year and versus October, which was the last clean business month," said Patricia Mash, vice president of revenue. "In both cases, revenue is up considerably versus markets without the new fares."
United pointed to share shifts against low-cost competitors in certain smaller, medium-size and connecting markets, as well as business travelers "buying up" from discounted fare classes into business-oriented buckets.
Furthermore, sources suggested that additional revenue could be flowing in through more aggressive corporate discounting by United in non-hub markets and travelers either booking or actually making trips earlier than planned to take advantage of the current fare levels.
Those lower fares—namely one way, walk-up prices 40 percent lower than previous levels
(BTN, Jan. 20)—are intended to protect marketshare and improve cash flow as United reorganizes under bankruptcy protection and solidifies a new business plan. They are available to and from United's hubs in Chicago and Denver and in 11,500 connecting markets, accounting for three-fourths of the carrier's network.
While competitors and travel management professionals did not doubt that United has seen share shifts and perhaps some level of traffic stimulation, they could not see how the math worked to produce revenue-positive results.
"I don't think anyone out there really believes those numbers," said a travel manager at a company based in one of United's hubs. "The public disbelief, including that of United's partner US Airways, is overwhelming."
Indeed, US Airways vice president of marketing and revenue management Stephen Usery relayed his skepticism to Business Travel News, saying, "I am scratching my head."
Usery said US Airways overlaps United in 15 percent of its markets and matched the lower business fares but has noticed no behavioral difference versus the rest of US Airways' network. "We do not see any traffic stimulation at all."
Mash countered that assessment, saying United "has many markets where we compete against low-cost carriers but not against US Airways," and that revenues are increasing.
Buttrick could not reconcile the carriers' opposing viewpoints. "Both statements can't be true," he said.
Meanwhile, revenue per available seat mile estimates for February, released last week by both Continental Airlines and US Airways, individually showed year-over-year decreases, in part, Usery said, because of United's fare action.
"If United's RASM versus the industry has increased in January and February, then I am shock-jawed and those guys are working magic," Usery said. "If they have sorted something out, I want to replicate it as soon as possible."
As per tradition, other carriers will not report RASM figures until the end of the quarter.
Meanwhile, Mash said United continues to test fare levels in markets not subjected to the new structure. "The West Coast is a little different because of the competitive nature," she said, "and we still are looking for the right price points on transcons."
Other carriers, including American and Delta, have been more guarded about recent pricing experimentation, though the strategy is clear. Delta is moving forward with Song, a low-cost and low-fare subsidiary, and American last week launched a new advertising campaign centered on low fares.