Airlines test cheaper business fares

Published: Tuesday, January 14, 2003 at 6:01 a.m.
Last Modified: Monday, January 13, 2003 at 9:52 p.m.
NEW YORK - Battered in 2002 by the loss of revenue from business travelers, major airlines are offering a wider array of cheap fares aimed at corporate fliers, whose frugality remains one of the most vexing problems for the ailing industry.
The strategy is gathering momentum as an important test of widely-held assumptions about the elasticity of business fares, experts said, and could eventually be critical to any turnaround for the industry, which is expected to report $2.4 billion in fourth-quarter losses, before special items, in the coming days.
Continental Airlines is scheduled to release its fourth-quarter results Wednesday, followed by Delta Air Lines on Thursday.
Airlines have been reluctant to say whether discounted business fares have been successful - that is, whether they have actually resulted in greater revenue from corporate travelers - but analysts are expected to pressure executives on the issue during earnings-related conference calls later this week.
In the past year, the seven largest U.S. carriers have increased by 20 percent the number of so-called alternate business fares, which carry more restrictions but are 34 percent less expensive, on average, than traditional business fares, according to Harrell Associates of New York, which maintains an extensive database of fares.
Alternate business fares refer to nonrefundable tickets that must be purchased within 10 days of travel. The minimum one-night stay requirement excludes Saturdays. The fares also carry a $100 change fee.
Bob Harrell, who tracks airfare pricing trends for Harrell Associates, said these fares are aimed at "office potatoes," or businessmen who aren't traveling as much as they used to.
The reduced spending by corporate fliers in 2002 was driven by two factors, experts say: the high price of last-minute travel and the added time needed to pass through security checkpoints ever since the Sept. 11 terrorist attacks.
To make up for revenue lost from business and leisure travelers, airlines have increased fees for extra bags, paper tickets changing itineraries. Airlines have also engineered aggressive cost-cutting strategies, drawing inspiration from Southwest Airlines, the thriftiest major carrier around and the only one to post profits during the industry's worst downturn ever.
"This is the holy grail," said Robert Mann, an airline consultant. "The airlines are going to have to get this thing (business travel) jump-started, or it's another year of earnings hell."
Indeed, at the start of 2003, several dark clouds are already moving in, with a potential war in Iraq causing jet fuel prices to rise and threatening to dampen demand for international travel.

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