Airlines add seats on optimism for 2011

by Tom Johansmeyer on

Do you think body scanners and TSA groping will keep people off planes next year? Well, the airlines don’t think so! Carriers are adding seats and flights, according to USA Today, in the hopes that the travel industry will continue to improve in 2011 as it has in 2010.

Through November this year, the top 10 airlines in the United States added 2.7 percent more seats for passengers than they had a year earlier, USA Today reports, with 90 percent of the airlines adding seats “by increasing the number of flights or moving to bigger planes.” JetBlue added the most with an up-tick of 7.6 percent, followed by Delta, which added 5 percent more seats year over year.

Business travelers are leading the charge, it seems, with airline readiness bolstered by a few years of tough times:

With signs of improvement in the economy, travel demand, particularly from the corporate sector, is on the rise. After three years of retrenching in the face of higher fuel costs and fewer travelers, airlines are beefing up capacity incrementally on profitable routes. They’re adding slowly so as not to have to lower fares. They’re adding seats on international routes more quickly than on domestic routes.

And the good news for the airlines is that these aren’t loss-leader additions. USA Today continues:

“We’re growing in profitable markets. We’re not flooding the seats with low (fares) to manufacture a competitive situation,” JetBlue spokeswoman Jenny Dervin says. “The overall supply and demand is in good ratio.” Much of JetBlue’s added capacity comes from additional flights to the Caribbean and in the Boston market, Dervin says. Other carriers are also sharply increasing international flights.

International fares are up 30 percent to 50 percent, with domestic fares up around 15 percent year over year.

[photo by mrkathika via Flickr]

TSA to impede travel market recovery? Not buyin’ it

by Tom Johansmeyer on

When I finally crawled out of bed and caffeinated Saturday morning, I made the rounds on Twitter and found a bold statement by travel journalist Christopher Elliott: “Thanks to TSA, 2011 could be a flat year for travel”. Despite the digging he did, I’m just not buying it. Passenger inconvenience, especially when it comes to leisure trips, isn’t likely to have a major effect on the travel industry in 2011.

You’ve read it from me on Gadling before: it isn’t the leisure traveler that defines the travel market; it’s the business traveler. These are people who have no choice but to hit the road, whether because they are instructed by their bosses or because they recognize business opportunities that they need for growth or simply to keep their companies alive. As business conditions continue to improve in the broader economy, demand for flights is likely to increase, and those buying tickets will have relatively little choice in the matter.

We’re looking back on what’s shaping up to be a positive year for the travel industry, particularly the airlines. And, according to Elliott, on his blog, “2011 was shaping up to be the best year for travel since the recession began.” He cites expectations of higher prices, even if only slightly, but pent up demand by travelers for “long-postponed vacation[s].”

Thanks to TSA, 2011 could be a flat year for travel http://bit.ly/gsbOfTless than a minute ago via webChristopher Elliott
elliottdotorg

The next year of the recovery could be imperiled, however, by new measures implemented by the Transportation Security Administration, specifically body scanners. In fact, Elliott writes:

But now that the Transportation Security Administration has introduced full-body scanners at many American airports, and subjected those who opt out of the machines to an “enhanced” pat-down, the 2011 outlook has changed, say travelers.

To support this claim, he talks to Jeff Cohen, an Austin, Texas-based securities trader, who claims to be “torn about whether I’ll travel more next year or not.” Cohen tells Elliott he goes on “a couple of large trips a year” and had a big one in mind for the first half of next year, “to somewhere exotic.” Now, Cohen tells Elliott, “[T] he recent TSA crackdown has me rethinking that.”

Further, the Consumer Travel Alliance sees the traveling public as generally unlikely to increase its travel activity. Elliott continues:

A majority (46 percent) say they will travel “about the same” as they did this year. Slightly less than a third (30 percent) will travel more, while just less than a quarter (23 percent) will travel less. This contradicts several earlier surveys, which had predicted a significant upswing in travel next year.

The key word here is consumer. The focus, here, is on leisure travel. The needs of business travelers are again overlooked.

Let’s consider Cohen’s case for example. So, he’s rethinking his leisure travel plans for next year. If he has to hop on a plane to close a deal or bring in a new client, is he going to do that? Would he sacrifice a two-hour flight for a 10-hour drive do so? I don’t know the guy, but drawing on my white-collar experiences, I think I know how he’d react to a major business opportunity a few states away … and it wouldn’t involve turning the key to the ignition.

The business traveler really has little choice in whether to hit the road. Could he skip a business opportunity or pass on a project in favor of something local – or to wait for a gig nearby to arise? Of course. But, that would mean turning down the very fees that put food on the table. Sales professionals need to travel to bring in business, fulfillment teams (e.g., the folks who provide the good or service sold) may have to take to the friendly skies and support sometimes needs to be provided on site. This is just how the nature of commerce has evolved. If conditions continue to improve, more of these people will be buying plane tickets.

And, they’ll pay more for them.

The nature of business travel, given that it occurs in order to support subsistence or the accumulation of wealth (both important), is that it is inelastic, at least relative to leisure travel. There is effectively no choice but to get on a plane, unless extreme measures are brought into the equation. Since business travel relatively inelastic, these travelers will pay more, which supports a continued travel industry recovery.

The fact that business travelers tend to be willing to pay more for their tickets also means that they have less choice in whether to fly. Sure, there are tools out there such as videoconferencing and online collaboration software that can provide a substitute, but a recovering market means that there’s more capital available, which facilitates investment in face-to-face meetings. When your boss tells you to travel, you travel.

As a result, the decision to travel is itself relatively inelastic for the business traveler.

So, if the business traveler is the backbone of the travel industry recovery, the TSA is unlikely to get in the way in 2011, even if every passenger listens to the snap of a rubber glove before an invasive pat-down begins.

Now, let’s take a closer look at the leisure traveler. The impact of the TSA security measures may involve a bit of hype there, too.

Even before Thanksgiving, the close to two thirds of consumers thought the body scans weren’t a big deal, with 70 percent stating they didn’t expect the enhanced security measures to slow travel down during the busiest travel season of the year.

Further, economic growth, if it occurs, will provide consumers with more disposable income. Those who have an interest in travel are likely to become more ambitious, taking the trips they’ve always wanted to. Elliott finds many who disagree with this assessment, but there’s nothing like having a freshly filled checking account to alter your perspective.

We all love to hate the TSA, and I’ll admit that I’m among the many in that camp. There’s nothing worse than waiting in a long security line at a crowded airport. The notion of having to devise and carry out strategies for getting through the checkpoints faster indicates the absurdity of what goes on in airports today. Efficiency is as low as customer service, and there’s little we can do about it.

That said, will body scans and pat-downs impede a travel market recovery next year? It doesn’t seem likely. General global economic trends will determine how many people get on planes next year, not the policies crafted and implemented by government employees.

[photo by oddharmonic via Flickr]

Delta sued over alleged false advertising on price guarantees

by Tom Johansmeyer on

Delta is headed to court over its claims of providing the best fare every day. Normally, this sort of advertising bravado wouldn’t lead to litigation, but the person buying the ticket happened to be Robert Izard … the “Izard” in law firm Izard Nobel LLP.

When Izard’s wife, Susan, sought a ticket to Israel on Delta, she was told the best rate for business class was more than $3,000 – if she paid for coach and used miles to upgrade. Her husband spent $300 to transfer enough miles to her SkyMiles account, adding to the tally.

What happened next is a lesson in “loose lips.”

After transferring the miles, Susan pushed a little harder on the phone to find out if she truly got the best deal. According to CTWatchdog.com (on which Izard’s firm advertises), the rep “finally conceded” that buying a business class ticket without any mileage games would have cost only $2,692.69, with all taxes included.
The report continues:

“Defendant’s representation that the economy class ticket at a cost of over $3,000 was “Today’s Best Guaranteed Fare” was false and misleading,” says the suit.

While the suit does not seek class action status, Wayne Boulton, an attorney with the West Hartford firm who actually filed the suit, said it could be changed if the firm discovers that others were also not provided with the best price of the day by Delta.

So, what’s next? A lawsuit signaling a decline in customer service when the price of oil climbs?

[photo by cliff1066 via Flickr]

Delta says customer service isn’t dependent upon costs

by Tom Johansmeyer on

It looks like Delta has some strong thoughts on airfare and customer service. The airline identified as the worst in the United States is now saying that customer service shouldn’t be related to operating expenses – well, at least that’s the implication of the new ad the airline is running on New York City subways: “Customer service shouldn’t fluctuate with the price of oil.”

The fact that airlines generally aren’t famous for customer service is well-established, and many excuses reasons are given, ranging from regulatory constraints to a lack of cooperation from passengers. Of course, cost always comes into the equation, too. Despite a strong year for air carriers in 2010, history shows that this is a volatile industry, and it’s always necessary to keep an eye on expenses.

It isn’t unusual to see airline industry employees cite cheap flights as a reason for the decline in customer service: what else do passengers expect, right?
This is what makes Delta’s move so interesting. A direct statement that service shouldn’t be constrained by underlying expenses (and thus profit margins), the ad I saw on the 3 train yesterday morning takes a bold stand. Delta is taking conventional wisdom head-on (well, airline industry conventional wisdom) in a very public way.

It should be interesting to see if this leads to a change in the airline industry employee population’s position on the relationship between cheap tickets and passenger expectations. For Delta employees, leaning on the traditional rationale results in a direct contradiction with the company’s stated message. Though the sentiment may not trickle down to employees of other carriers, their being vocal about the informal “expense-to-service” ratio inherently puts them at a disadvantage relative to Delta’s claim. The subtlety may not reach the average consumer (especially those who don’t come into contact with Delta’s ads), but the implication is clear.

Doubtless, it makes sense to draw distinctions between advertisements and expectations, and any change at Delta based on this messaging will take time to implement (let’s be realistic – big companies do tend to move slowly). Nonetheless, it will be interesting to see how this situation unfolds.

So, tell us what you think: do you think customer service expectations in the airline business should be linked to the price you pay for a seat? Leave a comment below!

Airlines and hotels: the travails of accommodating a recovery

by Tom Johansmeyer on

Market conditions are turning for the travel and hospitality industry. More people are leaving home behind for a while, and they are again willing to open their wallets to do so. Especially in the highly coveted business travel sector, seats are filling and rooms are being occupied. So, it would stand to reason that airlines and hotels would move to address the increase in demand. Unfortunately, accommodating growth can be risky in these industries. Every step must be made carefully and deliberately, with a plan for taking existing demand to a higher level.

Think about your local grocery store. If cans of corn start to sell aggressively, the store can examine the trend and order more for the following week. It may have to allocate a bit of extra shelf space, perhaps at the expense of canned peas The risk isn’t that high, though, because demand can be handled in smaller increments.

The core product isn’t as flexible in the travel and hospitality business. As people look to book more rooms or flights, a hotel or airline can’t simply add a bed or a seat. Airlines can add routes (or restore those that have been cut), but that creates a new problem.
Assume that demand for a particular route has grown from the norm to the point that another one third of a plane’s seats would be filled. New revenue is coming in the door, but cash is also going out to cover the cost of operating the flights. To make this growth profitable, the airline may have to fill more of the seats on that new flight. To accommodate demand, essentially, the airline will have to create even more.

This is the reasoning behind United Continental CEO Jeff Smisek’s remark on an earnings call recently, as reported by the Associated Press, “We will not grow for growth’s sake, but only if we can maximize our profitability by doing so.”

For the hospitality industry, the challenge can be even greater. A major chain may see an opportunity to take on more guests by adding another property, but this doesn’t happen overnight. It takes time, effort and capital to get a hotel up and operational, especially in a major city. During the time it takes to plan and execute an expansion, market conditions can change substantially, as the hospitality industry learned with the credit crisis of 2008. Real estate and financial market conditions can have a magnified impact on the hotel business, and the underlying drivers move far more quickly than those supporting increases in rooms capacity.

Projects already in the works in 2008 left the industry with more supply than it needed in 2009 and 2010, and demand for rooms, according to travel industry research firm PhoCusWright, isn’t expected to return to 2007 levels until next year. This means that net growth won’t begin until 2008.

Think about it: plans that may have begun to be executed in 2007 won’t deliver results for at least four years, maybe even five.

Managing supply and demand in the travel industry is, to say the least, a tricky business. Traveler purse strings are starting to ease, making life much rosier for airline and hotel company income statements. Taking advantage of this opportunity, however, is easier in theory than in practice. This year and next, we’ll see how the hotels and air carriers manage the perils of potential.

[photo by disparkys via Flickr]