MilesBuzz! - FC Reduced by Over 50% on NW, DL & AA - Big Impact on Elite Upgrades?

This is an interesting article from today's WSJ (entire article pasted below - from subscriber only area).

My take - I think it can have a significant impact on the upgrade availability. If on a 14 day advance you can purchase one of these deep discounted FC tickets, I think you'll see a lot more corporate, non-frequent fliers opting for the FC ticket.


Northwest Rolls Out 'BizFlex' Fares; American, Delta Adjust Their Fares

By SUSAN CAREY
Staff Reporter of THE WALL STREET JOURNAL


In a sign that the weakened demand for business travel plaguing the nation's airlines isn't going away, Northwest Airlines Wednesday rolled out a new category of first-class fares that chops between 50% and 60% off published prices.

The new pricing category, which requires 14-day advance ticket purchasing and an overnight stay, was matched by AMR Corp.'s American Airlines and Delta Air Lines in selected markets. Other carriers are expected to follow.

The big airlines have been aggressively discounting their tickets aimed at leisure travelers since the beginning of the year, in response to the slowing economy and normal seasonal weakness. But this is the first major fare cut for business fliers since January, when Northwest without fanfare introduced a new full-coach fare category. It also comes just six months after the industry pushed through a hefty increase in business fares, its sixth last year.

Northwest calls its latest ticket category First Class BizFlex. It is designed to reward premium-class travelers who can buy their tickets at least two weeks in advance and commit to staying away from home one night, but not necessarily the dreaded Saturday night. "Clearly it's a good deal if you qualify," said Sam Buttrick, an airline analyst for UBS Warburg. "It's a whole new fare category: deeply discounted first-class seats."

Business travel has been dropping steadily for the past six months, as measured by domestic passengers paying first-class and full-coach fares. According to Michael Linenberg, an analyst for Merrill Lynch, the number of business passengers fell 16% in February and 20% in March while the total passenger count was about flat. This "is not a reduction in business traffic per se," he said in a recent report. "We think many business travelers are booking ahead ... and downgrading from a higher class of service. As a result, there are more 'suits and ties' in the back of the airplane today than a year ago."

Because business travelers deliver two to three times the revenue of a leisure traveler, this slump has hit the big airlines where it hurts the most. The revenue shortfall, on top of higher fuel prices and sharply higher labor costs, plunged most of the big U.S. carriers into the red in the first quarter. And the softening economic environment doesn't suggest that a robust turnaround in business travel or airline revenue is nigh.

Tim Griffin, Northwest's executive vice president of marketing and distribution, said the new fares are an adjunct to a new fare category Northwest pioneered early last year and aimed at business fliers. Called BizFlex, those 10-day advance-purchase tickets save 40% off the full coach price with a one-night minimum stay. In January of this year, Northwest added the less-expensive 14-day advance purchase type of coach ticket with the same one-night stay restriction.

Mr. Griffin said he thinks Northwest would have introduced the lower first-class fares even if business traffic hadn't slowed. "We've enhanced our yield management in first class," he said. "We believe we can layer in new business ... without endangering our top-end business." Fewer than 1% of Northwest's domestic passengers pay full first-class tariff, he said. The carrier will provide only a limited number of seats under its First Class BizFlex offering, he said.

A regular Northwest first-class round-trip fare with no restrictions between Newark, N.J., and Minneapolis is $2,000, and an unrestricted full coach fare is $1,508. The First Class BizFlex fare on that route is $854. American said full first class on its one-stop Detroit-Seattle round trip costs $2,718 and full coach $2,062. The reduced first-class fare is $1,211.

Northwest must be expecting that more fliers traveling on cheaper coach tickets with longer advance purchase requirements or with Saturday night stay restrictions will upgrade to these First Class BizFlex fares, Mr. Buttrick said. "High business fares are the holy grail of airline economics," he said. "Established network carriers are generally very reluctant to tamper with business fares."

Write to Susan Carey at susan.carey@wsj.com


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Ken in Sacramento

Is NW short on cash? This is another remarkable development. First they slashed fares in the combined business/first cabin to Europe; then to Asia; then the promotion of 5 partners (who pay them now for the miles) for 10,000 miles (a deferred liability).

And now domestically a new fare class in F that is cheaper than unrestricted Y by half! This appears to be some kind of liquidity move.

This is the airlines' own fault for so aggressively hiking fares over the past few years. Nothing like a little backlash for the greedy... Too bad it may impact their loyal coach frequent fliers as well.

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"Sire, it is not a revolt. It is a Revolution!"

[This message has been edited by Spiff (edited 05-17-2001).]

The fares are so high that over 80% F goes unsold(according to various FTB forums). Some airlines are giving the F seats to employees(Delta forum). The price of F/C per mile is very high in US, compared to just about anywhere else, including Canada.

Lack of 1k,SEN, etc upgrades have not hurt Transatlantic economy sales.

Airlines might start filling some of those seats with revenue when the price is 3k instead of 6k.

This morning's paper said that American had reversed its decision to join in the deep discount FC wars. More room up front for those of use who use sticker upgrades.

Perhaps this move is an attempt to recover First Class as a marketable product, rather than primarily an upgrade perk or award seat..

It is also no surprise that FC discounted is now cheaper than "full coach". For a long time "full coach" has been a code name for first class, and company controllers have responded by heavily restricting its use, especially in today's economy. In addition, promotions such as "connect first" have long allowed many FC seats to be sold at drastic discount.

I think we are seeing in these FC discounts a return to pricing for market, which FC has not been recently. That probably does in the long haul mean less FC seats as upgrade perks, though not necessarily less FC award seats (where they are "paid for" by double the points of coach)..

You know, it's an interesting question: Will the airlines make more money by actually SELLING the first class seats, or by building customer loyalty with liberal upgrades? I expect the answer is not the same on every airline or route.

I am more intrigued by the spectre of having to ask my TA to check the first class fare, because it may be cheaper than the unrestricted coach I'm generally paying for overnight business trips. I've already checked a couple of NYC-CVG trips I have upcoming - looks like I'm about $100 below the FC fare - wonder if they'll let me "buy up".

This thread suggests another unscientific poll: for domestic travel, what would you pay as a premium for being in F instead of in Y? (Assume two-class planes only and ignore the different prices for Y.)

In other words, if you would pay $X for a ticket in coach, what premium would you pay to be in first class? For me if the coach ticket were (say) $500 then I would pay about $650 to $700 to be in first class. If the coach ticket were $100 then I would pay $200 to be in first class. My guess is that I would always pay $100 extra to be in first class, and for more expensive tickets would pay an extra 30-40% or so, but not double.

Don't these fares require a 14 day advance purchase?

Doesn't that make them hard to use for most business trips?

Are these tickets fully refundable?

Most companies will not allow most employees to purchase First Class tickets at any fare. (Remember when TWA & other airlines advertised their 'Y-up' and similar programs ... they said it would make you and your accountant happy.) For those business travelers, discounted FC means only fewer Elite upgrades.

For those business travelers who are allowed to or choose to purchase FC, this is moot. They will travel FC at the higher rate anyway. In other words, the airlines are discounting something where demand is not price-elastic.

It also means means less availability at the last minute. High-level business execs can have frequent travel plan changes. This makes these influencial people unhappy.

The airlines should discount their Y fares and similar business fares so that businesses that watch their travel budget can allow more people to travel.


MHO

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He who dies with the most miles ... is dead.

I'm curious about if these "first class fares" earn FC status mile bonuses. The old FC fare on NW would garner a 50% status bonus. Wonder what these new fares do to the situation?

cigarman,

I don't know how NW applies their bonus, but Alaska applies it based on the seat assignment - not the paid fare.

So if I upgrade a flight on NW or AA with miles or coupons and credit it towards my Alaska Mileage Plan, I get the 50% bonus as long as I have a F seat assignment. Another neat twist is that the 50% bonus counts towards elite status in Alaska's program.

-Robert

I don't think this will do all that much. It's kind of like dangling a carrot out in front of people that they can't eat.

People who have to fly right away -- no 14 day notice -- are going to be stuck paying the full coach fare. And they won't be able to take advantage of this.

However, what you can do is quote your boss the unrestricted coach fare, and then buy the first class fare, and then say, hey, I got it at a discount. That is, if you can book 14 days in advance.

A lot of times, you can't.

Most of my business travel is on more than 14 days notice - problem is no Saturday night stay, which typically relegates me to unrestricted coach (though not always, and not on all routes). However, these new fares require only overnight stay, which is usually no problem. And you bet, in that situation, I'll pay an extra $100-200 (depending on flight duration) to bump my arse forward in the cabin!

Special First vs full fare coach and company policy.

There is an easier way around the policy, since explaining to your boss will not make finance happy.

But the coach, get it ticketed, agency issues invoice. YOU then call airline and ask about this new fare. They will let you pay the difference or just move you if same price.

Other than a dip in demand what other factors can reduce fares? Shouldn't the costs for the airlines come down to be able to reduce fares. With fuel and labor shooting up how can they afford to cut fares over the long-term (except as a shortterm liquidity/inventory clearance step).

I am guessing competition could drive fares down, but I do not see any more real competition in this consolidating market. Foreign airlines cannot carry domestic passengers and there are no real domestic startups around with the except of JetBlue which has a very limited route network (just a total of 30 or so flts a day now and a doubling by next year). LUV and the other majors seem to have segmented the market without any direct competition.

Got to keep hoping ...