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First-class travel becomes cheaper on some airlines

By SCOTT MCCARTNEY, The Wall Street Journal via AP


January 11, 2004

This is how upside-down, inside-out airline pricing is these days: First class can be cheaper than coach.

Dennis Waters went to book a trip to San Diego from Philadelphia, figuring he could save money by making a connection in Pittsburgh. US Airways, like most network airlines, usually prices connecting flights cheaper than nonstops. But this time, the nonstop flights were cheaper, only $518. Odd, Mr. Waters thought, but a pleasant surprise.

Then came the shocker: When he tried to upgrade it to first class, US Air's Web site wouldn't let him — because it was already a first-class fare. "Something doesn't compute here," says Mr. Waters, chairman of GenomeWeb LLC and a New Jersey resident.

With all the matching of prices from low-fare carriers going on these days, airlines have made their maddeningly complicated pricing even more maddening and complicated. It's like a restaurant menu with so many additions and deletions and changes and fixes that it becomes unreadable and unappetizing. At some point, you almost seem better off starting over with a clean sheet of paper.

Fighting back more aggressively these days, the big boys are broadly matching special fares by low-cost carriers on selected routes. They have to: Low-cost carriers like America West Airlines and AirTran Airways, both of which offer a first-class cabin, are actively pursuing business travelers and taking away high-paying customers, forcing new kinds of price-cutting in the front of the airplane, not just the coach cabin.

In Mr. Waters's case, US Airways and other carriers were matching cheap first-class fares offered by America West for trips that have to end by March 31. US Air lowered first-class prices in nearly 100 markets; other airlines did the same. Tuesday, a search for Philadelphia-San Diego nonstop flights on Travelocity, US Air's cheapest unrestricted coach offering came up $2,412 for a flight departing Jan. 27 and coming back the next day. But search Travelocity for a first-class seat, and you get $524.

And you wonder why US Air and the rest of the industry are struggling?

"We've got to match everything out there," says David Castelveter, US Air's spokesman. "But it's clearly understandable how this would confuse the customer. It's like buying a Cadillac for less than a Honda." US Air's chief executive, David Siegel, has been pushing for a simpler fare structure, Mr. Castelveter noted, but no airline appears willing to go first.

Airlines throw these cheap first-class fares out there, without adjusting coach prices, because they can still sell expensive coach tickets once the limited inventory of first-class seats sells out. And booking sites like Orbitz actually help, because they force travelers to choose either a search of coach or first-class fares, eliminating price comparison. Cheaper first-class fares may be available — but few know about them.

Travelers find multiple ways to avoid the gouge-class fares, especially these days as the low-fare lines keep growing. For one thing, it's well worth doing a search for first-class fares when booking online, to make sure you don't miss these kinds of deals.

In this business, airlines adjust prices several times a day to make sure rivals don't have a price advantage. Tickets are priced not on what it costs to provide the service, but rather on how much money the carrier thinks it can get. When traditional carriers match a rival's cheaper prices, they often try to limit the damage to their revenue by offering as few seats as possible at the lowest price, making the best deals hard to find.

Yet as the supply of low-priced seats builds — and it has been building, even in the first-class cabin — cheaper seats become more plentiful. So do these pricing absurdities.

US Air is by no means alone in upside-down pricing. Major airlines face so much pricing chaos these days, they routinely undercut themselves. Delta Air Lines, for instance, sells first-class seats on nonstop flights between Atlanta and Orange County, Calif., (where it competes with America West connecting flights and AirTran flights to Los Angeles), for $594 round-trip. That's an unrestricted, changeable ticket — and yet it's less than half the price of Delta's unrestricted coach ticket: $1,461 round-trip. (Delta does offer cheaper coach seats on that route, but with restrictions.)

The price gaps are particularly ironic for US Air, since its marketing chief, B. Ben Baldanza, recently yanked his company's products off Expedia for a few weeks because Expedia raised its fee for selling US Air tickets to $8.99, compared with $5 for tickets on other airlines.

Charging a different price for the same service? Mr. Baldanza found that inequitable. "We cannot allow them (Expedia) to differentiate, and we won't," he said in a press release.

Of course, the airlines are themselves masters of price differentiation. But it's no longer just a matter of, say, paying more for a last-minute booking or a more-flexible ticket, or paying one price for business trips and another for leisure trips. Today a ticket for a business trip might cost $400 or $2,000, depending on the airport. There's no logic, no good reason why it should cost five times more to land at Los Angeles International than at Long Beach, except that the traditional carriers try to differentiate between routes where they directly compete with low-fare carriers, and routes where they can extract much more.

US Air says the Expedia situation (since resolved) was different from its own pricing because it involves a third party independently trying to raise the price of US Air's tickets. When airlines differentiate on pricing, they are doing it on their own product. Got that?

There is something enchanting about an airline pricing guy complaining about discriminatory pricing. But it only highlights the mess that network carriers have created. Instead of trying to price every market differently and parse every plane into multiple fare buckets — creating a structure where first-class seats are far cheaper than coach — airlines need to embrace a fare structure that is simpler and more uniform.

Most say they would like to. But then they say they can't afford to risk a price war with aggressive competitors or risk lowering revenue at a time of such huge financial losses. That's hard to figure, since the airlines with the simplest fare structures are producing the biggest revenue gains, and travelers clearly are willing to embrace fair fares. Besides, low-fare airlines are rearranging the fare structure, whether the "classic" airlines want to or not.

Airline pricing has changed. The Internet has given customers power to find the fare they want. The growth of low-fare airlines has penetrated across the skies. Yet major airlines continue to tie themselves in knots with complex fares.

It's time for a clean sheet of paper.

 
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