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Premium airfares in the melting pot. But some old principles still remain

1-May-2009

FRIDAY REFLECTIONS, WITH RON KUHLMANN & THE CENTRE.

In last week's Friday Reflections we looked briefly at the market for premium travel and the airlines' evolving strategies. Two clear facts emerged: 1) The supply of premium seats is woefully out of balance with the demand; and 2) There are, consequently, some really good deals available today. That is the good news. Hardly surprising, but let's dig a little deeper...

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...The downside-and it is a huge one-is that the chaos that has characterized airline pricing is even more pronounced, as now all classes, rather than just economy are in play. Anyone who has traveled, or spoken with a traveler, or even read a newspaper knows that economy class fares have always been flexible and even on occasion, negotiable. But buying a premium ticket, at least for individuals, was a fairly straightforward transaction.

Alas (or fortunately for the diligent), this is no longer the case and spending more can require the same sort of commando search that has long characterized flying in the cheap seats. The (temporary?) demise of corporate sales has pushed some of that closed-shop pricing into the public domain - if you are prepared to work for it.

In the course of a mind-numbing search process, I discovered that two long-term fare components still (usually) count:

  1. the time till travel (advance booking); and
  2. the length of stay, with that pesky Saturday or seven-day minimum still in play.

To sort through the maze, I consulted the web sites of the three most frequent operators on the New York Kennedy to London Heathrow route; British Airways, Virgin Atlantic and American Airlines. There are certainly many other choices but these are the airlines that have long enjoyed Heathrow access and have had the route as a core business component for an extended period.

Buying a last minute, short stay fare: high fares still sticking

The research for the first itinerary was done on April 23, for JFK departure on Monday, April 27, clearly last minute. The return was booked for Friday, May 1, a journey of only 5 days. I also tried to keep the departure times roughly equivalent, therefore choosing on the basis of schedule rather than taking the lowest fare flight of the day.

Those in the back of the aircraft have their own bargains to find but I concentrated on the enhanced Economy (BA and VS), Business (all three, but called Upper Class on Virgin) and First (AA and BA). It also must be remembered that American and British are both oneworld members, though as of now they have no immunity to coordinate either fares or schedule. That pending cooperation is still a matter of debate on both sides of the Atlantic.

Searching for "last minute" premium fares

 

Economy

Business

First

Others

AA D

 

7224.50

 

 

AA R

 

7244.50

 

 

AA

 

 

15027.50

7450.50

BA

3201.83

10568.83

16815.83

 

VS

3201.83

 

 

 

VS D

 

7546.83

 

 

VS J

 

11697.83

 

 

Here we see the fares, including taxes, surcharges and any other supplement the carrier chose to tack on.

The first shock is that the $10,000+ business class fare is alive and well under certain conditions. Nothing here is a bargain. It is also intriguing that the fares charged by the UK carriers all have an 83 cent portion while the American fares end in 50 cents. Some things will have to remain a mystery.

Economy plus is fairly easy as the amounts are the same. However, if the idea behind this enhanced economy offering is to provide cover for those travelers requiring an economy purchase, all things are not equal. The fully refundable Y fares, which would be paid in the absence of Y+ are; AA $2125.30, VS $1775.68 and BA $2073.68 so the supplement for buying the new and improved product is substantial.

Business class gets very interesting. American's R-fare bucket, listed as having restrictions on refunds and change fees is actually $10 more each way than the D bucket, or business flexible category, that has no restrictions. In Virgin's D fare category the Upper Class seat carries various penalties for changes and cancellation while the J fare is fully changeable and refundable. The price of full refundability is pretty steep.

The most interesting offering is American's "Instant Upgrade", which is described by the carrier as a "special fare for upgraded travel". In my research, the $7450.50 got me a business class seat eastbound (in R) and a First Class seat (subclass A) on the return. As bargains go in this mix, that definitely qualifies as the best.

Further Out, Longer Stay: now for bargains

Now that we have sticker shock under control, lets have a look at the costs incurred for the same routing, but with more advance notice and a longer stay.

The same flights were researched, departing JFK on Monday, June 1 and returning a week later on Monday, June 8. The fares are now substantially reduced and, most surprising, is the fact that a full enhanced economy fare, at $3201.83, is higher than the reduced business class fare, making it a real steal for the business traveler except for that problematic C in the fare box. The juxtaposition of hard policy and market reality can often be upsetting.

Searching a month further out for premium fares

 

Economy

Business

First

Others

AA D

 

5390.50

 

 

AA I

 

2228.50

 

 

AA

 

 

15027.50

6747.50

BA normal

3201.83

11697.83

16815.83

 

BA sale

1353.83

2325.83

 

 

VS W

3201.83

 

 

 

VS K

1353.83

 

 

 

VS Z

 

2325.83

 

 

VS J

 

11697.83

 

 

Looking for bargains?

Now we have them; with American offering its refundable business class fare (D) at a level far, far below the competition and less than its comparable charge for the earlier journey. The Instant Upgrade is a bit lower but my test booking confirmed two Business segments rather than the previous First Class seat on the return. If a seat in First is available at departure, the upgrade would likely be forthcoming, but that appears to be a $4000+ gamble, considering that the same confirmed seats (in I) are available for $2828.50.

Other notable differences are the new fare bucket designations that have been assigned by the revenue management systems. BA's confirmation does not display a booking class prior to payment, but American has its lowest fare in I and Virgin puts its reduced fares in K and Z. There appears to be a large number of fare buckets available for the allocation of business fares and seats.

We are entering new yield management territory

1. Business class pricing is far from monolithic. In the first (short notice) itinerary, there was a large spread between the BA fare and those offered by AA and VS. Even at the last minute, not all seats and/or conditions carry the same price tag;

2. Advance purchase fares are more uniform but are all equally spectacular in their reductions. The prices charged by BA and VS represent an 80% reduction compared with the "normal" rate. That kind of markdown is often associated with "Going out of Business" promotions (!);

3. First Class appears to be mostly above the fray and available only to those able to part with substantial funds. But, dollars to donuts you could probably find a seller with lower prices if you looked long enough. And of course, anyone with the Instant Upgrade would likely get a suite seat at a far lower cost;

4. There are very few absolutes in the pricing of seats, whether in the front or the back of the airplane. Though not good for the carriers, the prevalence of discounting will likely be with us for a while and the concept that the price of a seat, any seat, is immutably fixed is becoming fiction.

And, is premium economy here to stay?

The pertinent question is whether or not supply will diminish or demand increase so as to return true pricing power to the carriers and their premium products. One might also speculate on the longevity of premium economy products.

An increasing number of carriers have now added this section as a third or fourth cabin offering and the management of so many parallel products certainly has its own challenges. Carriers like Virgin Atlantic and Air New Zealand that had (or returned to) a two-class configuration now have three.

If this trend gains further traction, especially in hotly contested markets like New York/London, will airlines like Delta and Continental, currently with Business/Coach arrangements, need to add another option? How will alliance partners with different configurations rationalize fares? Are multiple cabins differentiation or distraction?

All these questions are coming to an airline boardroom near you. And the answers are probably critical to their very survival.


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