Airlines run out of services to cut, eye flights

Cuts aren’t limited to airline employees and passenger amenities. In the next few months, capacity – the number of asses that can be accommodated – will be sliced. Having fewer flights will lower costs and boost the all-important revenue per available seat-mile (RASM) metric. For passengers, the drop in supply is likely to push fares higher and convenience lower (if you’re looking for non-stop flights, you’ll have to look harder).

It’s earnings season – and what happens down on Wall Street will ripple through every airport in the country. Six of the nine top airlines in the United States posted profits for the year – fun! – but they did it on falling sales. What’s that mean for the average traveler? It means airlines have had to cut their way to profits, because they aren’t growing. If passengers aren’t spending as much, all the airlines can do is take away services that cost money. And, with RASM down 19 percent year-over-year for seven U.S. airlines, they have little choice.

If you’ve been on a flight recently, you’ve seen there isn’t much left to cut, which is why airlines are going to be cutting the flights themselves. For the fourth quarter of 2009, total available seat-miles (one person flying one mile on one flight) is expected to fall to 12.4 billion – which is close to post-9/11 levels. Two years earlier (Q4 2007), it was 14.2 billion.

I hope you believe that “getting there is half the fun.” If you do, the decline in non-stop flights won’t bother you as much. Prepare for layovers – lots of ’em. This will help airlines consolidate flights, fill vacancies and boost RASM. But, it also means that you’ll spend a bit more cash at Auntie Anne’s (get some cheese with those pretzels!).

Cutting costs could actually lead to higher prices, which the airlines desperately need – but it means a smaller base of seat-miles on which to make money. Competition will fall on some routes, and overall supply drops – both of which give airlines the power to increase fares. Of course, these really are minor forces compared to broader economic conditions. The ability of customers to pay is ultimately what drives the cost of a ticket, and absent an economic recovery, fares will stay low, as will airline earnings.

Drinking in Utah no longer for members only

Four decades after making it difficult to get a drink, Utah realizes that buying liquor involves spending, too. Last week, the state decided to allow liquor to be sold to anyone with a valid form of ID. For the past 40 years, getting a drink has involved becoming a member of a private club – which required an application and a fee.

The cost of tradition, it seems, is $7 billion – the amount Utah pulls in from tourism every year. Officials figure they can add to that number by selling wine with dinner, among other liquors and situations.

You know what … it just might work.

I know a lot of people by liquor in New York, and I vaguely remember seeing people in Boston, Washington and Chicago spending cash on booze, too. It happens from coast to coast, as of July 1, 2009 without exception.

The private club rules that are now assigned to history were not particularly severe, but it’s not hard to see how they could become a pain in the ass. Annual membership fees started at $12, and you needed a separate membership for each bar. Tourists could buy temporary memberships, starting at $4 for three weeks, but they could only bring up to seven guests into a bar with them.

Hotels built the membership fees into their room rates, so they could drink at the hotel bars without fear of misstep. Bars that served only beer didn’t require memberships.

Yeah, you need needed a chart to keep the various rules straight. Now, it’s pretty easy. Belly up to the bar and order yourself a shot!

Making sense of the airline industry

The situation is currently grim for airlines, having gone from “bad in January to ugly by March,” according to USA Today, mirroring the U.S. economy as a whole. But, some feel that the worst is behind us. At the same time, a decline in business traveler traffic may suggest that we have a long way to go.

That’s why I love USA Today … two perspectives for the price of one!

Let’s make one thing perfectly clear: airline executives are unanimous in refusing to state that a recovery has begun. Keep in mind that CEOs have to be incredibly careful whenever they speak. Something that’s interpreted as a prediction could be disastrous later. A prediction becomes a goal to be met, and failure to do so can have harsh implications on the stock price.

In case you don’t know, that means real people lose real money.

That being said, Delta, American and Continental executives allowed themselves some modest hope, suggesting that “at least traffic levels aren’t collapsing the way they did last year.”

For now, there’s little to celebrate aside from the hope that we’ve hit bottom. Continental’s revenue per available seat mile (RASM) fell 4.8 percent in January, 11.5 percent in February and 20 percent in March. April is likely to be down 13 percent to 15 percent.

RASM basically tells you how much revenue an airline pulls in for every seat flown. Let’s make it easy: assume that a plane has two seats and flies 100 miles. One passenger pays $200 and the other pays $100. The first passenger pays $2 per mile, and the other pays $1 per mile. It averages out to revenue of $1.50 per available seat mile.

Now, assume that we have a third seat … and it’s empty. So, we’re working with $2, $1 and $0. That’s RASM of $1 (as opposed to the $1.50 above).

Figuring this out for an entire airline for a full month is obviously much more complicated, but you can probably see the value in doing so. It’s a way to figure out just how productive every seat on every plane is – even the empties.

Delta’s perspective is that things aren’t getting worse right now, even if they aren’t good, and American believes that it’s too early to tell.

The decline in business travel is seen as a big part of the problem. Business travelers tend to spend a lot of time in planes, and they don’t always get the lead time to buy tickets (or prepare their families for long absences) that they’d like. As a result, they often pay more for tickets than vacationers, who have the luxury of planning ahead.

To keep expenses down, many companies are trying to cut their spending on travel, opting for other collaboration alternatives. While face-to-face meetings are nice, they tend to be a lot more expensive than webinars and conference calls. When you have to squeeze the budget, travel is an easy place to cut spending a bit.

I saw this firsthand during the last economic downturn (following the collapse of the “dotcom economy” and the terror attacks of September 11, 2001). I was a management consultant and flew every week. While my clients were willing to foot the bill for weekly travel, I found myself under a lot more pressure to find cheaper flights, stay at hotels that were less expensive (and less convenient) and take a taxi to the airport instead of driving and putting my car in the lot for a week.

Though business travel can be cut, it won’t go away completely. There will always be a need. While many cite conventions as a source of business travel, you’re more likely to run into weekly grind travelers at airports in this economic environment. Catch the first flight out of a major airport on a Monday morning, and you’ll see business and business casual attire, laptops clutched and weary looks. These people make the same run every week, returning home on a late flight Thursday or Friday. When you have a lot of people dropping $500 a week on flights – each doing it 40 times a year or more each – the airlines benefit. When they slow down, the airlines feel pain.

To compensate, as you’ve seen here on Gadling, airlines are coming up with more fees – and they’re not all as crazy as the Ryanair pay-to-pee proposal. Baggage charges seem to be most common, with Delta hitting up passengers for $50 to check a second bag on international flights (starting July 1, 2009). The airline hopes this will generate another $100 million this year.

Delta’s not innovating, here; it’s just the most recent.

The need is salient, given recently released first quarter financial results. JetBlue and AirTran stood out by turning profits ($12 million and $28 million, respectively), largely because the cost of jet fuel dropped. Take that out of the equation, and AirTran’s 31 percent revenue decline would have had a greater impact.

Meanwhile, US Airways posted a $103 million loss. Alaska Air Group lost $19.2 million for the quarter. Delta, American and United showed substantial losses, as well.

Leisure travel isn’t the primary driver, as fare deals have kept this section of the market fairly active, if less profitable. It’s the business travelers who are straining airline financial performance. It will take a turn in the economy to solve this problem. Any measures available to the airlines are more likely to slow the bleeding than repair the situation as a whole.

When will that happen?

Like the airline CEOs, I’m not crazy about making predictions, as my success is shaped more by luck than clairvoyance. But, I’ll take a small step out on a limb. Businesses will green light travel increases when they see an upside to doing so. When sales teams encounter big opportunities, they will be able to make the case to fly. This means that a client has to be ready to write a big check. Also, startup activity will result in the use of venture capital funding to hop on planes with the hope of pitching new ideas to clients interested in growing their businesses or realizing a cost savings.

You won’t notice it at first; these trends take a while to gain steam. Success builds upon success, with each win leading to several new opportunities and a willingness to fund travel for them.

Am I willing to throw a date or timeframe out there?

No way!

We’ll all have to wait and see.

Aisle theater seats may cost more money

Taking a cue from airlines like Northwest and US Airways that charge more for certain aisle and exit seats to increase revenue, some performing arts theaters are doing the same. According to this AP article, some theaters have found patrons willing to cough up as much as an extra $25 to sit in an aisle seat.

Although I can see that the extra cash comes in handy for the theatrical companies who are finding ways to make ends meet, there’s a certain aspect of this practice that I find annoying. When you buy theater tickets you already pay according to where you would like to sit–orchestra seats as opposed to the balcony, for example. And just because you’ve paid for an orchestra seat, doesn’t mean your seat is all that great.

Sometimes you could have seen better in the balcony depending on who is sitting in front of you. If there is a tall person with big hair, for example–or a person who can’t quite decide which way to lean, there you are struggling to see the stage. All that money you paid for a “good” ticket may not seem worth it by the middle of Act II.

If the theater is really looking to make money and to make seating more fair why not charge tall people more? Also, consider this. If there is a heavier person sitting in the middle because he or she can’t afford the $25 for an aisle seat, what does that do to the comfort of the other theater-goers around him or her?

Charging more for seats that are already a hefty price for most people seems elitist to me and not particularly fair. It seems like instead of drawing people to the theater, it’s one more way to detract some people from coming, i.e., older people with arthritis, people who have mobility problems, heavy people and people with long legs.

Although, on the other hand, if there are aisle seats that are available for people who actually need them because of size or some other physical condition, that seems fair. I would hate to think that some people are kept away from the theater because a physical issue that makes them and everyone else too uncomfortable unless they are able to pay extra to alleviate the problem.

Think that’s weird? Then check out these weird hotels and learn what “weird” really is!