Posted by Seth on February 10, 2010 under News | 
The Mid-Atlantic US coast is suffering some of the worst snow in years today. The airline industry is experiencing the most cancelations on a single day in over 8 years – over 4,000 flights canceled today according to USA Today, and that doesn’t even include Southwest’s schedule. Needless to say that tens of thousands of customers are affected and the airlines are all responding to the storm. Of note, however, is that each airline is responding somewhat differently. Sure, they’ve all put out a press release essentially stating that customers can make changes “for free” to affected itineraries. But just how free are those changes?
It turns out that for most carriers the “free changes” are anything but. Getting a seat could cost hundreds of dollars and the airlines aren’t particularly cooperative or sympathetic in many cases. Even when the changes are truly free there are limits and caveats the customers face. Just how different are the policies? Here’s a quick summary.
At the most liberal end of the spectrum is New York City-based jetBlue. The carrier has implemented a no fee, no fare difference policy for affected customers. The main caveat is that all travel must be rebooked prior to the original scheduled departure time. But other than that the policy is quite friendly. Customers can book until until February 28 to reschedule their trips. Not too shabby.
American Airlines is up at the same level as jetBlue though they are somewhat more restrictive in rescheduling of the travel. AA is not charging any change fees or fare differences for changes so long as the rescheduled travel occurs by February 14.
Delta has matched AA’s policy. No change fees and no fare differences assuming the origin/destination are the same and travel is completed by February 14th.
Closely following these three in customer-friendly policy is United Airlines. United is permitting a waiver of change fees across the board and also of fare differences for travel rescheduled within 48 hours of the originally scheduled flight. For travel pushed farther than that any fare differences are borne by the customers. So a cheap advance-purchase ticket that is rebooked for a week from now may incur a significant charge to make the change as the cheaper fare buckets are unlikely to be available.
Three other major carriers – Continental, US Airways and Southwest – have implemented a no change fee policy (Southwest never charges one anyways). In each case, however, the airline is requiring that the same class of service be available for rebooking without charge. Lacking that availability customers must either pay the fare difference – potentially hundreds of dollars per ticket – or fly standby and hope to grab a seat. Neither is particularly appealing. The details of the policies for those carriers are spelled out here: Continental, US Airways, Southwest.
Are such variations in policies enough to drive your booking tendencies? And are they fair? After all, it isn’t the customer’s fault that mother nature decided to assault the mid-Atlantic this week, right?
Posted by Seth on January 29, 2010 under frequent flyer |
Nearly a year ago American Airlines sent a letter to the IRS defining about 40 different “services” that the carrier offers to its customers. They asked for specific rulings on each of the 40 with respect to § 4261 of the IRS code, the section that covers the specific activities for which the airlines are required to collect and remit taxes. In general such a document wouldn’t be all that interesting, but there are a couple things that this particular one has in it that are worth noting. The impact on taxes for baggage fees has already been covered, and that is reasonably interesting, but there are two specific entries in the services list that describe potential future offerings. These are the two bits that piqued my interests most.
- Service P allows Members to purchase “bonus” Miles (i.e., double or triple miles) on certain flights to be credited to the Member’s Account. Currently, this service is occasionally offered to members free of charge on a limited-time basis. However, Taxpayer is preparing to offer Service P for a fee.
United Airlines currently offers a program similar to that identified as “Service P” above. They call it their Award Accelerator and it is generally a pretty bad deal; the points are too expensive. Continental also offfers something similar with their “Extra Mile” promo every year. So American wouldn’t be breaking new ground with such a more. Still, it would be an interesting move to see American attempt to further monetize their frequent flyer program and cash in on the obsession with points.
- Service CC allows Members to redeem Miles for the purchase of air transportation on Taxpayer’s website. At the time this letter ruling request was issued, Taxpayer was not charging a fee for Service CC. Taxpayer is, however, contemplating implementation of a fee for this service. The fee would be charged at the time of ticketing.
This one is a bit more worrisome from the consumer perspective. It suggests that AA is considering adding a booking fee for reward ticket reservations made through the website. Currently most airlines charge for such reservations when they are booked through the call center. Extending that out to bookings made online would be quite a leap. Currently there are a couple airlines that have such “convenience fees” for bookings but it would be quite a shock for a legacy carrier to start down that route. The verbiage is sufficiently different – “contemplating implementation” versus “preparing to offer” – that it doesn’t seem likely such charges are imminent, but it is out there now and intriguing enough to raise an eyebrow or two.
Related Posts
Posted by Seth on January 29, 2010 under News |
A few months ago I wrote about some inquiries that Congressfolks were making over the unbundling of airfare components. Basically the airlines have been shifting more and more of the travel costs out of the base ticket price but the feds are only able to tax that base ticket price. The end result is that all the unbundled services are about 7.5% better for the airlines than simply raising fares by a comparable amount across the board.
It seems that the folks on the ill can take a break from that saber-rattling or at least find a way to refocus their efforts. The IRS released a ruling in response to a request from American Airlines, clarifying about 40 different scenarios and the taxability of each under the IRS code. The document is, as one might expect, a rather boring read. But it does provide some insight into just what the carriers can charge for without having to pay any taxes. In addition to any baggage handling the ruling addresses the taxability of buying miles (taxable), lounge memberships (not taxable) and fuel surcharges (taxable).
Probably not a huge surprise but it does confirm that the airlines’ decision to unbundle services and charge fees is more profitable for them than simply raising fares, to the tune of about 7.5%. In an industry that has been bleeding cash every little bit helps.
Related Posts
Posted by Seth on December 13, 2009 under News |
The negotiations of the USA-Japan open skies treaty have been ongoing for quite a while now. This latest round of talks, held last week, was actually extended by a day to allow for the final details to be ironed out since they were so close. And ultimately the deal that they struck seems to be a very fair and very good one for the airlines and for customers.
Tokyo Service
With the exception of Tokyo all destinations in Japan are now accessible with unlimited frequencies by all American and Japanese carriers. That is a significant step forward. The Tokyo market, however, is key to pretty much all service to Japan and the agreements reached on that front are quite interesting. Both airports – Haneda and Narita – will remain slot controlled due to the significant demand for service to those airports. And the number of slots that US-based carriers have at Narita will actually decrease a tiny bit. But there’s a good reason for that.
Tokyo’s Haneda airport – the more convenient and desirable destination for most passengers headed to Tokyo – is opening up to more international flights starting in 2010. Some of those flights will be potentially operated to the United States under this deal with as many as four daily flights permitted. That is going to be a very significant benefit for whichever carrier manages to secure those slots. There are a number of restrictions on the new Haneda slots, including late night departure times which aren’t particularly ideal. But it is better than nothing.
Anti-trust Immunity
There are some other interesting nuggets that came out of the agreement as well. Anti-trust immunity (ATI) will be permitted on the US-Japan routes for the first time ever. While there will still be specific applications required for such operations the ATIs will permit coordination of schedules, service and fares for partner carriers on routes between the two countries. The Star Alliance carriers of ANA, Continental and United Airlines are best position to take advantage of the ATI opportunities and they’ve already announced their intentions to do so. The three carriers expect to be able to better coordinate their offerings and streamline operations. In addition to the Star Alliance three, JAL will likely take advantage of the ATI opportunities once they figure out which suitor they’re going to dance with in the bankruptcy/bailout recovery effort. Both Delta and American Airlines are still pursuing the carrier aggressively and being able to apply ATI policies to the operations following whatever deal might be reached will be rather beneficial to whichever partnership comes out of that deal.
Extra Freedoms
Finally, both countries will be removing restrictions on fifth freedom routes. Fifth freedom flights are some of my favorites because the routes seem strange when viewed out of context. They are flights operated between two countries, neither of which the airline is based in, where the airline is permitted to sell seats only on that route. There are a number of such flight in Asia particularly, such as Air France flying between Bangkok and Hanoi or Ho Chi Minh City. And there are a few in the USA, like Cathay flying from Vancouver to New York City’s JFK airport. As part of this agreement fifth freedom flights will the permitted without restriction by Japan or the United States. This is great for carriers that want to grow their route maps onward from Japan or the USA. These “add-on” segments generally help to make flights that might otherwise not be profitable happen, so there is an increase in service between markets. Plus there is the opportunity to grab the “other” flight generally rather cheap and have some fun flying on different carriers.
The loser on this bit is most likely Delta which acquired a number of route authorities ex-Tokyo when they bought Northwest Airlines recently. That purchase gave them a number of slots and authorities from Tokyo and now all the other carriers who desire such will be able to get in the game on those flights, assuming they can find the slots. Also, the third country will still need to approve the fifth freedom flights so it isn’t completely open, but there are many more opportunities now for many more carriers.
Mostly good, but potential gotchas
Overall, agreements such as this are generally a good thing for passengers. The increased opportunities for carriers to provide service generally means that where they think there is a market airlines will try, at a lower cost than if they had to buy route authorities to provide such service. The ATIs are always a bit of a toss-up as they essentially permit collusion and price-fixing between partners. As long as there are enough non-partnered carriers in a market that generally isn’t a problem but it is something that always causes a bit of apprehension as it can lead to higher prices due to less competition. Still, there’s a lot of potential good news out of this agreement. Now we just wait to see how it actually plays out.
Posted by Seth on November 24, 2009 under Internet |
Yeah, it seems that beating up on Aircell and the adoption of their gogo in-flight internet service seems to be a recurring theme in the industry. But that doesn’t mean that it isn’t possibly deserved. There are a ton of questions out there about just how bad their cash flow situation is. And the answers and information coming out of Aircell doesn’t seem to be helping their cause.
Runway Girl, as always, has some great information on this issue in a recent post: Does Aircell get an average six users per flight? – Runway Girl. Here’s the gist of it. Aircell is claiming 100,000 users per month, which sounds like a big number. But when you divide that out by the over 600 planes in the air with Aircell service and an average of 4 flights per plane per day the numbers are much more worrisome. The math works out to six users per flight. Just six. Considering that they are likely eating the whole cost of the installs and potentially also sharing revenue with the airlines that number just isn’t sufficient to sustain the service.
Sure, things are looking up right now with the expectation of much higher adoption this holiday season. That is due, in large part to the fact that it is free on many carriers. American Airlines, Delta and Virgin America have all struck deals of various sorts for free access (the Virgin America one is, by far, the most broad). And users definitely seem to be enjoying the service. On my recent Virgin America flight there were definitely more than 6 users online but the overall user experience suffered for it.
If the company cannot get sufficient demand at the appropriate price point such that they are going to be profitable then they are in big trouble. If they get that demand but the performance stinks they’re in an even worse position. It is hard enough to attract customers to such a service. Keeping them after a bad experience or three where the costs are not trivial is going to be pretty difficult. I fully admit that one experience does not make a trend, but I’m still worried for them.
No matter which way you look at it the future of in-flight internet is, at best, a hazy proposition. And Aircell is the fuzziest of them all since they’ve got the most exposure right now.
Related Posts
Posted by Seth on November 18, 2009 under News, points |
The dance of buyouts and other aid offers surrounding Japan’s JAL sped up a bit overnight with Delta leading the effort from SkyTeam to offer over USD$1Bn in cash and loans to the beleaguered carrier should they be willing to defect from the OneWorld alliance. American Airlines offered back a similar amount, though without the need for $300MM in alliance-switch penalty guaranties. Yes, things are truly interesting over in Japan these days.
But with the two airlines in question hemorrhaging cash these days there is a rather important question that needs to be answered: Where are they getting the money to make such offers?
The answer, it would seem, has a lot to do with frequent flyer points. Lately the only way the airlines seem to be raising any cash is by selling their points to credit card companies. Both American and Delta have recently signed deals to raise funds from Citibank and American Express, respectively. So the airlines are selling a ton of points to third parties and then turning around to use that cash in an attempt to buy JAL. Yup, they’re trying to buy an airline with points. Not quite as crazy as getting a boob job using points though almost certainly a better value on a dollars/point ratio.
As for the actual effects of the loans/merger/buyout/bailout/whatever we’re calling it, that isn’t particularly clear. JAL holds the largest share of takeoff and landing slots at Tokyo’s Haneda airport and they are definitely worth a fair amount of money. Of course, that value depends on having a Japanese economy that is functional and able to push passengers onto the flights.
Perhaps Delta is looking to recreate the Pan American route network buy purchasing 5th freedom rights around the world. Then again, that didn’t work out so well for Pan Am.
And maybe they’re actually trying to drag SkyTeam out of its current position of the “we got picked last” alliance, though I’m not really sure that picking up an almost bankrupt carrier really helps on that front. Still, having the JAL route network would be a huge boon for SkyTeam, though perhaps not quite as significant as the hit OneWorld will take from losing their only representation in that region.
It doesn’t seem likely that anything will actually be decided in the immediate future so there will be plenty of time to watch this one play out. And it should be a rather entertaining dance to watch.
Related Posts
Posted by Seth on October 21, 2009 under Internet |
In a move that hasn’t garnered nearly the same publicity as Virgin America’s announcement that they’re teaming up with Google, American Airlines has announced that they are teaming up with Lexus to provide free wifi to users of the gogo system on their flights. The AA promo is much more limited – only 7 days – and requires one to know a special promo code – 2010LexusLS – so it isn’t nearly as good as the Virgin America deal. But something is better than nothing.
Full details on the promo are here.
Posted by Seth on September 17, 2009 under Uncategorized |
Just how many frequent flier miles does a billion dollars buy? Ask the folks at Citibank, who have just made such a purchase from AMR, parent of American Airlines. It is no secret that the frequent flier programs have been the most consistently profitable part of airlines for the past several years and it is transactions like this that make them such.
But the credit card companies need these miles to continue to entice folks to sign up for their credit cards and pay the annual fees (often waived in the first year) and run charges through the system, earning money for the banks. And then the customers have all these miles that they can use to redeem for free trips. Everybody wins. Except that the airlines are barely staying in business. Ditto for the banks. And those “free” tickets are anything but. Still, it does seem to work in theory.
Ultimately it seems that the best thing for us to do as consumers is to ensure that the cycle continues. We want the airlines to stay in business so we need the banks to keep buying miles and giving them to us, 25,000 at a time. Keep churning those CC applications, folks. We’ve got an industry to protect.
Posted by Seth on September 2, 2009 under Uncategorized |
The airlines must be desperate. Both American Airlines and United launched double EQM promos today, akin to the programs they ran earlier in the year to drum up business. They must truly be desperate for passengers.
Sorry I don’t have more witty and in depth analysis, but it is time to go diving.
United’s announcement
AA’s announcement
Posted by Seth on August 25, 2009 under Uncategorized |
Forgetting for a minute that travel today was dictated by work (only the second time this year!) and that I was actually busy the entire day, it really was a great day to be out and about. Today’s trip was a quick one – a day trip from New York City to Washington, DC – but it was also two great travel experiences wrapped around a relatively normal work day.
The day started on the train out to JFK and a quick(-ish) flight down to Washington. Yeah, I flew out of JFK. LaGuardia has the shuttle flights, and I intended to fly US Airways to extend the expiration date on my miles there, but I put off booking the flights and by the time I got around to actually doing it the appropriately timed flights from LaGuardia were way too expensive. So I booked out of JFK instead. I was somewhat hoping to fly on American Airlines and catch a new airplane type, the ERJ-135 or –140, but again the fares were too expensive. So I booked on Delta and a CRJ-900 and accepted the relatively crappy seat 16-A that I was able to get during the booking and check-in process (one in the same since I was within 24 hours of the flight time).
The plane turned out to be pretty much empty – I think only one of the pairs of seats had two people in it – so I was able to self upgrade to the exit row seat 13-D. The seat is pretty much the same as the first class seats on that flight in terms of legroom, and I don’t really need the extra width, so as far as I’m concerned I got the good seat on the cheap. The in-flight “service” was questionable – the thought that a 40 minute flight is too short for beverage service is rather laughable considering that from LaGuardia I can have two drinks in that time and that half the plane was asleep – but I was (eventually) able to get a cup of water to enjoy with the yogurt that I liberated from the SkyClub at JFK so it wasn’t all bad, just mostly. But I was flying, and that makes up for a myriad of sins.
The flight was a first for me: my first JFK-DCA segment. Sure, it isn’t particularly exotic like the random flights to Korea and back that I’ll get next week, but it is still a new line of my version of a map of the world and that is always a good thing. Plus it meant getting to watch the climb-out from JFK which is one of my favorites.
And then, about 40 minutes later, I was on the ground at Washington National Airport. Another 20 minutes on the Metro and I was in the office putting out fires and smacking vendors around which is always a good time. Eight hours later and I was headed out of the office and over to Union Station to catch a train back up to NYC. Always a train in the evening. The actual time in transit when using public transportation to and from the stations is the same and the train back to NYC is WAY more reliable in terms of timing. Plus it means a few hours of open bar when sitting up front rather than racing to down two beers on the Shuttle flights. And I’ve done my best to ensure that I drink my fill. It is a bit annoying that the Amtrak lounges have no booze available – even if I wanted to pay for it – but such is life. The fact that the attendant just offered me a double so I’d stop asking for refills is a win in my book.
At the end of the day (which is rapidly approaching, as the sky grows dark outside the train windows) I’m reasonably convinced that pretty much everything went right today. I was out traveling, I wasn’t particularly delayed at either end of my trip and my total travel time round trip was about as good as it could be. Oh, and I had plenty of vodka on the ride home. All in all, a good day. These are the type of business travel days that I remember fondly when I think back to my days as a road warrior travel guy.
Posted by Seth on August 25, 2009 under Uncategorized |
The NY Times ran a piece in today’s print edition (25 Aug 2009) and also online titled “Airlines Are Sweetening Frequent-Flier Programs.” The article focuses on a few recent changes that have come out amongst the various major programs in the United States. They touch on one-way awards from American Airlines, United cutting some fees and Delta adding a new tier and roll-over for extra miles earned. It takes until well into the article – about 60% of the way through – until they get to someone taking a hard look at the reality of the changes from the perspective of the frequent traveler rather than from the industry’s point of view.
That “every man” point of view happens to have been provided by me. And I think that the reporter did a pretty good job of representing my feelings on the topic:
“The legacy airlines especially are doing as much as they can to generate loyalty, and these days that means crazy bonuses — double miles for this, triple miles for that, miles are being given out like candy on Halloween,” Mr. Miller said.
“It’s great now,” he added, but he worries that the airlines’ largess could have a downside. “The question is, what happens when everyone tries to take advantage of all these benefits that are being handed out now? I’ve got elite status, but am I going to be able to get upgrades or will everybody else have status, too?”
That is the crux of every change that the airlines make. The vast majority of them sound great on the surface, but once you dig a bit deeper that often turns out to not be the case. Delta’s new Diamond tier is great – it is essentially what Platinum used to be five years ago – but the qualification level is now 67% higher. American’s one way rewards are fun but I have a habit of generally coming home at the end of a trip (even if my routing is less than direct). And the AA change removed stopovers at international gateways, actually increasing the price of many rewards (particularly the type of trips I like to take). And while I don’t know what United has up their sleeve with regard to the reduced fees, they have plenty of other things they do to artificially limit options for their customers.
The main factor that I feel the article missed is that loyalty in the travel industry is a rather fickle thing. A diehard customer will walk in a heartbeat if they feel inappropriately slighted by such a change or if another carrier shows up with a shinier trinket to dangle in front of them and a reasonable route map and schedule to match. Sure, corporate contracts drive a fair amount of loyalty, but there are plenty of folks out there who, like me, are just looking for the best option available to them. That might be Continental for me today, but that doesn’t mean that it will be in 2010. With each of these changes the programs risk alienating people just as much as they can attract new loyalists.
The key is to make sure that the changes attract more revenue than they lose, and that’s always a challenge for the airlines, even when the revenue is the minimal ~$3000 I gave to get top tier status this year.
