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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