Tuesday, June 30, 2009

How bad is Business Class demand this summer? Pretty bad

First the airlines began offering discounted business class fares for travel this summer - around $2000 round trip with an advance purchase and Saturday night stay. But these kinds of deals have become common place during the summer season over the past few years.

Then, particularly to London - where a host of new competition has be launched with the opening of London Heathrow, came bonus miles. Lots of them. American and Delta have both been offering 50,000 bonus miles with the purchase of a round trip business class ticket. Both promotions were supposed to end tomorrow but Delta has continued this promotion all the way until the end of September - well into the usual peak demand period for business travel. Details here. Delta is also offering 25,000 miles for coach tickets by the way.

Today, Delta began offering upgrades into Business Class from select coach fares for 1 mile. Yes, that is correct, one (1) frequent flyer mile will get you a big seat to Europe, South America or Asia. Granted, the lowest coach fares do not qualify (you need to buy one of the more expensive Y, B or M fare classes) but it is still an amazing deal. Usually, Delta requires 25,000 miles EACH WAY for an upgrade into Business Elite as Delta's business class is known... Travel is possible until September 15th. The deal isn't available online but can be booked by calling Delta's reservation centers.

We give credit to Delta for trying something new to stimulate some demand - this is certainly better than dropping business class prices and trashing the marketplace. Delta may tempt some people to try the product who would not have otherwise. And some revenue is better than nada these days in the airline biz.

Wednesday, June 24, 2009

United to (some) Travel Agents: Credit Card Fees are Your Problem

It appears United has taken the next step in the airline industry's never-ending quest to lower distribution costs or at least get others to shoulder the burden for them... As first reported in the Beat, United today informed a currently unknown number of travel agents that they would no longer be able to use the industry reconciliation system, ARC, to process tickets which were paid for with a credit card.

United is asking these travel agents to process credit card transactions themselves and then report the sale as a cash transaction. Until now, when a travel agency (or OTA) has sold a published ticket on United (or any other carrier) the credit card is actually processed by the airline. As such, the airline is responsible for paying the 2-3% (in rough numbers) that Amex, Visa, Mastercard and Discover charge for using their cards. In the new world proposed by United, agents will process the credit cards themselves (presumably along with an additional consumer fee) and then remit the full amount of the ticket back to United. This would obviously save a considerable amount of money for United if widely adopted.

Still too early to tell what this means for consumers but if the airline industry adopts United's moves broadly, consumers may be forced to pay one more fee if they are not willing or cannot visit an airline's website directly. Given the usual herd mentality in the industry starting way back when commissions were reduced and carrying forward to today's myriad of baggage, mileage redemption and call center fees, it would not be surprising to see this play out in a broader way.

If adopted even more broadly and applied to the Online Travel Agencies, they would be forced to reinstate some sort of booking fee in order to cover the costs of paying credit card merchant fees. This would return a pricing advantage to the airline.com websites that has recently been removed by all of the major players in an attempt (which we have heard has been successful) to drive growth.

It is unclear, in a typical airline conundrum, if the agency would be allowed to use traditional ARC processing if a consumer attempted to pay for their ticket using their Chase Mileage Plus Visa card.....

Tuesday, June 23, 2009

Republic Airlines: Delusions of Grandeur?

For the second time in as many days, Republic Airlines (no, not the forerunner of the current Northwest er, ah, Delta) has bought a struggling airline. Yesterday they bought Frontier Airlines and this afternoon they announced they were buying Midwest.

What makes this interesting is that, until now, Republic has only flown flights on behalf of other, larger airlines under codeshare agreements. Hence why you can't actually (for now anyway!) buy a ticket on Republic Airlines. You may have flown on Republic but the regional aircraft you flew on was marketed and sold by one of the many carriers Republic operates flights on behalf of including US Airways, Delta, United, American and Continental.

This will be Republic's first foray into selling, marketing, revenue managing etc their own flights - today all of these functions are handled by the larger major carriers.

The bigger question is how the major carriers who now provide the majority of Republic's business through contract flying will feel about suddenly competing against a supplier - particularly at a time when the regional airline industry has an excess supply or regional jets. It is hard to see how United could be happy about competing with Frontier in Denver at the same time Republic (which now owns Frontier) is providing flights for hire for United!

We doubt Delta, AA, Continental or US Airways are relishing similar situations either- they were probably hoping for Midwest and Frontier to be removed as competitors rather than bolstered.

On the other hand, the Street loved it - RJET was up 46% today

Southwest announces MKE service - How long will the cookies last?

It certainly appears that former sleepy (and expensive) Milwaukee is set to become the uber-low fare battle ground this fall when Southwest begins service. Midwest Airlines has long dominated MKE but Airtran (followed a failed merger proposal) has aggressively added service in the past few months. Midwest has reduced flights and switched to smaller regional jets on many routes as they have attempted to defend their home turf.

But starting November 1st, the real fun will begin when Southwest launches 12 daily flights nearly all of which are already flown by Midwest. Southwest will even start service between Kansas City and Milwaukee - both important focus cities for Midwest. Rounding out the new service will be 3 daily flights to BWI, two to Vegas and Orlando and a single flight each to Tampa and Phoenix.

Airtran should be just fine. After all, they already compete head to head with Southwest in Baltimore on numerous routes. Midwest, however, has already pulled back many flights and returned most of their 717s - with many flight now being operated by Republic Airlines regional jets. And this afternoon, Republic announced they were actually buying Midwest Airlines - their second purchase of a smallish regional airline in as many days. (Republic is the new proud owner of Frontier Airlines but that is a whole other discussion) It is hard to see how Milwaukee can support not only this much service but also three low-fare airlines (which Midwest isn't really used to being) battling over many of the same routes.

We love the cookies on Midwest - we just worry how long we'll be able to enjoy them....

BA Gives all-Business Class Flights to London Another GO

Today, British Airways (BA) announced schedules for their newest entry into the competitive New York to London market. Starting on September 29th, BA will operate one daily flight from close-in London City airport to JFK using an Airbus 318 configured with just 32 lay-flat business class seats.

The route was originally launched when upstart all Business Class carriers such as Eos, MaxJet and SilverJet were making waves in the New York - London market. Eos, in particular achieved success with the banking and legal set due to the close proximity of London Stansted to the City of London - the heart of the banking sector. BA decided to go one better and offer flights from an even closer airport - London City.

Since then, the financial markets have obviously cooled even further and Eos, MaxJet and SilverJet have all gone the way of the Do-Do. But even in these difficult times, BA is set to launch with one daily flight, climbing to two daily flights later in the year. (The flights will not operate on Saturdays and will stop for fuel in Shannon, Ireland on the way back from London due to the short runways at London City)

Interestingly, BA has decided to run this operation completely separate from their other up-start operation, OpenSkies. OpenSkies operates from JFK to Amsterdam and Paris along with Newark - Paris in an all-premium economy and business format. How many different business units and brands does BA really need? And do all these different brands and products fragment the market or segment it? Time will tell....

Monday, June 22, 2009

Clear: No Longer Cleared For Take-Off

It appears that Clear, the company that offered consumers the ability to pay a fee in order to hopefully endure shorter lines at TSA security check-points has closed up shop. According to the Clear website at www.flyclear.com, the company will cease operations at 11:00PM PST today, June 22nd.

Clear seemed like a good idea but they were really never able to deliver a highly differentiated experience. You still had to take your shoes off, you still had to had to remove your laptop from the case and you still had to deal with the TSA.

Clear did seem to deliver employment for lots of people - we saw them standing around security check points all over the country. The only people often with less to do than the TSA seemed to be the Clear people.

The only exception we ever really saw was at Orlando. In Orlando, Clear really made a difference but this was just a factor of being the lone business traveler in a sea of Mickey fans.

Still, Clear's demise is a shame. There should be a faster way to get through security for "known travelers"but we'll save that for another Op-Ed.

Tuesday, June 16, 2009

Columbus, GA: 2, Expedia:0

The Georgia Supreme Court ruled against Expedia in a case brought by the City of Columbus relating to hotel occupancy taxes. In the 4-3 ruling, the court upheld a lower court's ruling that Expedia needed to charge (and remit) the occupancy taxes on the full rate charged on Expedia.com rather than the lower net rate which was actually remitted to the hotel.

This is the third case that has gone against Expedia in recent months with similar rulings in Washington State (albeit a consumer class-action suit) and Anaheim, California.

An example which shows the issue at hand:

Room rate on Expedia.com: $100.00 (Net rate: negotiated between Expedia and Hilton $80.00)
Room rate on Hilton.com: $100.00
Columbus, GA tax rate: 7%

In this scenario, the consumer would pay $107.00 at either Expedia or Hilton.com Hilton charges $107 all-in as does Expedia to maintain rate parity between the two channels. Expedia labels the $7 "taxes and fees."

However, it gets interesting when you look at what is going on behind the scenes. In the above scenario, Columbus gets $7 ($100 x .07) from the Hilton.com booking. With the Expedia booking, Columbus gets $5.60 ($80 x .07) since occupancy taxes are collected (and remitted) based on the revenue flowing through the door of the actual hotel. The hotel never sees the $100 rate - just the $80 wholesale rate and remits taxes on same.

Expedia retains the resulting $1.40 difference as the fees portion of the "taxes and fees."

But here is the rub - this is the way tax has been collected on net hotel rates for years - long before the advent of the Internet. Since way back when Liberty Travel practically invented the travel package, hotels have always paid on the money that flowed across their thresholds. And consumer sales tax is not collected on the wholesale price of goods but the retail price. It seems that a "new" distribution channel has been singled out because of its own success.

Municipalities and states should give a second thought to going after the OTAs - after all, they are critical to bringing in tourist dollars - biting the hand that feeds you may not be such a smart idea. Let us know when Columbus, GA finds another marketing vehicle with as much reach and breadth as Expedia.

We'll see where this one goes - indeed, the appeal would rest with the United States Supreme Court.

Thursday, June 11, 2009

Delta: Cutting Further Capacity this Fall

Delta announced this morning that they will cut capacity by10% this fall vs. the same time last year due to the effects of the recession and rising oil prices. Of note, they will also reduce international capacity by a further 5% for an overall reduction in international flying of 15% year over year.

Several international routes of note are on the chopping block for the fall. First up is Atlanta-Shanghai nonstop service. This is a route that Delta fought bitterly for against other US carriers and only started flying in March of 2008.

Also on the block are nonstops from Cincinnati (CVG) to Frankfurt (FRA) and London-Gatwick (LGW). Since merging with Northwest, Delta has pulled back significant capacity in CVG in favor of its newer and much larger hub just North of CVG in Detroit. If CVG can no longer support nonstops to London and Frankfurt (routes Delta has flown for more than 10 years) one can only expect further downsizing in CVG.

Wednesday, June 10, 2009

Delta: Ooops, we forgot the fuel surcharge: Crazy deals to Europe!

Last night, Delta uploaded a host of new fares for Central and Southern European destinations including Madrid, Zurich, Athens, Barcelona and the like. In so doing, however, they managed to leave off the $200 fuel surcharge making for some outrageously low airfare deals.

For example, JFK-Zurich in August for $233 including all taxes and fees. Similar deals were to be had to Madrid and Barcelona - the taxes alone to Europe these days are often over $100. Athens was a bit more but who is going be bothered paying $400 for a ticket to Greece in the peak of summer?

How did this happen you may ask?

Airlines file or load international airfares from their internal systems to a distribution partner known at ATPCO or the Airline Tariff Publishing Company. ATPCO is owned by most of the major airlines and serves as a central "hub" for fare (but not inventory) distribution to the major Global Distribution Systems (GDSs) such as Sabre, Travelport and Amadeus. ATPCO sends international fare changes to the GDSs five times per day where it is processed and made available for sale. Travel agents (everyone from Amex to Expedia) can access the airlines fares, schedules and availability directly from the GDSs.

Airlines send two pieces of data to ATPCO with each load: Fares and rules. The fares are fairly self explanatory - a basic dollar amount for each specific fare product. The rules get more tricky. This is where each fare product is defined - things like Saturday night stay requirements, advance purchases, etc. Also part of the rules section is, you guessed it, fuel surcharges. In last night's load, Delta inadvertently left of the $200 fuel surcharge for these fares. ATPCO dutifully uploaded the fares to the GDSs and voila: Cheap tickets to Europe!

And, yes, the deals are still out there as of this posting - but dont expect them to last too long - you can be sure Delta is taking steps to correct their mistake....

Monday, June 8, 2009

Sunstone Hotels to Bank: Take this W and Shove it

Today's WSJ is reporting that Sunstone will simply turn over the W San Diego to the hotel's mortgage holder rather than continue paying the mortgage.

Sunstone, a REIT, owes $65M on the W which it purchased in 2007 for $96M. That translates to over $250,000 in debt per key for the 258 room hotel. Not surprisingly, Sunstone says the hotel is now worth less than the $65M mortgage so, like so many residential mortgage holders, they are simply walking away from the hotel and giving it back to the bank.

The WSJ reported that the hotel ran a 69% occupancy rate in 2008 and generated revenue per availiable room of ~$153 - not enough to cover the debt service.

The hotel has always been location challenged in that it is not within walking distance of the historic Gas Lamp Quarter where most of the restaurants and night life are in downtown San Diego. The opening of the 1190- room Hilton San Diego Bayfront has also not helped the W nor the overall San Diego market from a rate/occ perspective. In addition, Starwood added two hotels to its San Diego roster - The U.S. Grant Hotel (a Luxury Collection Hotel which has been recently renovated) and the Westin Gas Lamp Quater - a 450 room hotel. By adding additional assets that compete for the same pool of Starwood Preferred Guest members as well as groups and meetings, Starwood may have further compounded the W's troubles.

Of note, the management of the hotel as a W will probably not change anytime soon - management contracts usually live beyond ownership.

Thursday, June 4, 2009

Marriott Offers Double Credit Towards Elite Status

As we predicted a few weeks ago, this is going to be the summer of mega-bonus promotions from your favorite hotel loyalty programs as the major chains battle to preserve share among an ever shrinking pool of business travelers.

Today, Marriott announced their newest promotion which gives Marriott Rewards members double credits towards elite status from now until June 26th. Similar to many promotions currently running by all the major airlines, the promotion enables members to earn elite status twice as fast as usual.

Elite status gives a number of nice benefits when staying at Marriott brands including bonus points, an elite reservation line, priority late checkout, ultimate reservation guarantees etc.

If you are a business traveler that is still traveling, we suggest picking a chain and raking in the bonus points, elite status bumps - get while the getting is good! It will make for a great rest of the year and into next when you are enjoying a nice upgraded room or a free weekend somewhere nice!

Monday, June 1, 2009

Travelocity and Orbitz match Expedia but Differences Remain and Orbitz Adds a Twist

So, today is June 1st and not surprisingly, Orbitz and Travelocity have fallen into line and matched Expedia's air booking fee removal which was announced last week. However, as usual in this game, plenty of nuances remain between the different sites.

For one thing, Orbitz and Travelocity have not eliminated *all* booking fees - they still charge them on multi-carrier itineraries and trip which originate outside the United States, Canada, Mexico and the Caribbean. So, intrepid travelers who use Travelocity or Orbitz to book a flight from Moscow to Minsk will still get hit with a booking fee on Orbitz and Travelocity. Similarly, let Orbitz or Travelocity find a great fare using American one way and Delta returning and you'll also get hit with a booking fee. Odd, because these kinds of tickets certainly don't cost either Orbitz or Travelocity more to sell or process than a regular old domestic ticket to Chicago.

(As an aside, Priceline does not sell international point of origin tickets)

Orbitz is still charging $30 (over and above anything the airlines charge) to cancel or change a ticket they sold. Priceline has not charged these fees for years and Expedia eliminated them last week when they announced they were removing booking fees for good. Travelocity also does not charge these fees.

Orbitz is showing another new feature for air consumers - it is a little hard to find, but Orbitz is now allowing bookers to cancel a ticket without penalties until 10PM CT the day after it was booked. This feature (which has been long available to traditional agents who are able to simply void tickets before they are fully reported to the airlines via ARC) is new to the online travel agency world. While the websites have always been able to do this, none have ever used it as a marketing tool. Several airlines (Delta, United come to mind) have similar features but this is one more example of Orbitz delivering more value to consumers. As just pointed out by Travelocity, they too offer this feature. Very cool but again, pretty well hidden - and it seems like a key differentiator from supplier sites.

And, if none of the OTAs are charging fees, do all the "fee chop," "no fees," and "booking fees eliminated" marketing messages really mean anything to anyone anymore? These are starting to sound a little like "Best Rate Gurantees"