March airline plunge softens in April

by Tom Johansmeyer on

Passenger traffic is still falling. That’s not going to change for a while. But, the decline slowed in April, signaling that the prolonged sharp dips may be behind us. Some optimists even believe that the worst is over – though I maintain a healthy skepticism.

Note the metric being used: passenger traffic. There’s a lot of mileage between asses in seats and money in the bank. On a positive note, increased passenger traffic means that more people are spending money on travel. Of course, deep discounts are responsible in large part for the increasing traffic. The value of these passengers in dollar terms, therefore, is quite low.

United Airlines reported a traffic drop of 10.5 percent in April 2009 relative to the same month in 2008. Delta and American sustained smaller declines. Southwest, meanwhile, showed a 4.1 percent increase.

And, fares fell.

The average one-way domestic fare paid in the first quarter of 2008 was $213 – compared to $246 for full-year 2008.

For now, however, the airlines believe it’s better to sell seats at any price, especially if they have to put a plane in the air anyway.

Extra seat charges: big bias or svelte snobbery?

by Tom Johansmeyer on

As airlines are scrambling for any shred of extra revenue they can find, some policies are getting more attention than others. The so-called “fat passenger policies,” which govern the accommodation of passengers who require more than one seat, have attracted the ire of the NAAFA. Never heard of it? It’s a new one on me, too: the National Association to Advance Fat Acceptance. On the other hand, passengers who pay for one seat and use only one seat wonder why the hell larger passengers should consume two of the airlines’ fundamental units for sale (i.e., the use of a seat on a plane) for the price of one.

Here’s the perspective that’s been lacking: revenue per available seat mile (RASM). Check “Making Sense of the Airline Industry” for a deeper look at how this measure works. Then, come back here and think about what it means for the sale of seats on planes. Cash-strapped airlines are forced to give up revenue.

United Airlines seems to have found a way to balance both sides of this argument. If there is an extra seat available on a flight, a passenger who can’t fit into one seat will be given the extra at no charge. On full flights, larger passengers can wait for a later one that has space and can occupy two seats at no extra charge.

Southwest, Alaska Airlines and Continental have policies, as well. Though the specifics vary, the armrest is pretty much the decision maker. If you can’t put it down, you can’t occupy only one seat. Southwest and Alaska Airlines require the purchase of an extra seat but will refund that part of the fare if the flight is not full. Continental, on the other hand, won’t refund the difference. In fact, the airline requires the purchase of an additional seat on each segment flown at a “hefty day-of-travel rate [read the original article, “hefty” was not my word, though I applaud the writer for being gutsy].”

JetBlue has no formal policy and claims that its larger seat size is already a step in the right direction. Delta and Northwest say that they’ll do what they can to accommodate larger passengers, but a purchase may be necessary. Virgin America asks that the big folks buy two, with one refunded if there’s an empty on the flight.

You can get my thoughts after the jump.At the end of the day, there is only one point that matters. Airlines are businesses run in the interests of their shareholders. Since most of these businesses are struggling, they need to do what they can to maximize revenue. If that means charging for two seats for passengers who can’t fit in one, so be it. If an airline feels that that’s a public relations nightmare and would rather accept the degradation RASM … it’s up to them.

It’s a numbers game – and not the numbers on the scale.

I’ve always been a believer in “pay to play.” You want a seat? Cough up. You want two? Cough up twice as much. “Buffet-style” air travel – in which you pay once and take as much as you want – simply doesn’t work.

And, I respect airlines for addressing the rights of all passengers. Everyone has a “sitting next to a fat guy” story. Yes, some are really just infantile bitching because planes are generally cramped. But, some are legitimate. A larger passenger who wants to save a few extra dollars and can’t put the armrest down is having his ticket subsidized by mine. That has an effective financial impact on me, and it’s unacceptable.

It’s not an issue of weight. However you look at it, the concern is financial. Take the word “fat” out of the equation, and it’s much easier to solve.

Making sense of the airline industry

by Tom Johansmeyer on

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.

Daily Travel Deal: United launches mega fare sale

by Grant Martin on

United Airlines just launched an outstanding fare sale to the American Southwest, with fares starting as low as $39 plus tax. Texas is one of the focal points, with destinations such as El Paso, San Antonio, Houston and Dallas boasting the great prices, but other locales like Albuquerque and Oklahoma City are also a steal.

Check out United’s promotional site to see a full list of fares and destinations. Each-way fares are based on required round trip purchase and availability is limited, so make sure that you book early. And don’t forget about United’s Double Elite Qualifying Miles promotion that’s currently underway which will get you extra perks for your trip.

And make sure to keep checking the top five travel deals for the latest greatest travel deals.

United airlines “fat passenger” policy prompts plenty of backlash

by Scott Carmichael on

On Wednesday, I posted about the new United Airlines policy for charging “passengers of size” for 2 seats, if they are unable to fit in one seat or use a single seatbelt extender.

Now, whether this new money maker is a good idea or not, is besides the point, at least for United, because the PR backlash is already starting to hurt them and has forced them to change the wording in their rules.

The AAPR (not to be confused with the AARP) is the Association for Airline Passenger Rights, and they claim that charging large passengers is just another way for the airline to make even more money. Instead of changing the rules, they say the airlines should change their seats.

“They’re at it again,” said Brandon M. Macsata , Executive Director of AAPR, of the airline industry. “United is now the latest airline to shelve customer service standards in search for higher profits, while claiming that the new policy is to ‘protect’ other passengers. At issue should not be the size of any passenger, but rather why the airlines continue to pack coach passengers like sardines into the cabin.”

I completely agree – airline seats in coach are too small, but in an industry where competition is fierce, packing more people in your already cramped planes is one of the few ways they can still make money.

And to be honest, the policy isn’t really after “large” passengers, it is for “really really large” passengers. If you need more than one seatbelt extender, and/or need more than one seat, then you do need to pay for it, especially if you are going to be an inconvenience to the passengers next to you.

As much as I’d love to see modernized (larger) coach seats, it’s going to take a miracle for the airlines to invest in the back of the cabin. Remember, these are companies that don’t even have the money to hand out free pretzels.

Still, it is nice to see an organization protect the rights of the airline passenger. To learn more about how the AAPR is helping us, check out their site.