I’m often intrigued by the information I can glean from Twitter chats. I tend to avoid them more than participate in them but a chat this past Friday hosted by @JohnnyJet and @CJMcGinnis piqued my curiosity so I tuned in. The chat was about summer travel and used the #TravelSkills tag for tracking the conversation. The two hosts didn’t waste any time getting in to what is often a touchy subject: How much is a reasonable price for airfare?
My answer was actually easy to come up with. For summer travel I’ll spend up to 100,000 points for a business class trip to Europe. And I’ve been quite successful in finding those when and where I want them over the years. But that’s just me. What was interesting to me were some of the other responses I saw to the inquiry. Seems that a lot of people think that $1000 is an reasonable upper limit, with many believing that even lower fares are "fair" for such a trip.
Some responses based the price on where they’d end up:
And some considered where in the USA they were starting as part of the thought process:
Every single one of the numbers tossed out as being "fair" was actually below the average cost to operate the flight which would carry the passenger on the trip (based on published average cost data from the airlines). So, with the exception of some bargain fares on oneworld carriers to Dusseldorf (and even those are ~$900 from the east coast), it seems that many of the chat participants are going to be disappointed. Chris points out that average fares are in the $1200-1500 range already and there are no signs of those dropping much anytime soon.
Fares are higher on average than they have been the past few years; there is no doubt about that. Even off-season fares are higher. That mostly comes from less competition, less capacity and a desire by the airlines to actually make some money. Absolute fares are at or near all-time highs, while inflation-adjusted fares are still quite reasonable according to DoT analysis (note that the DoT data is for domestic, not international, but the trends are similar):
Not adjusted for inflation, the $367 third-quarter 2012 average fare is the fifth-highest average fare for any quarter since BTS began collecting air fare records in 1995. The highest was $385 in the second quarter of 2012. The previous third-quarter high was $361 in 2011. Third-quarter 2012 fares were $243 in 1995 dollars, down 18.1 percent from the average fare of $297 in 2000, the inflation-adjusted high for any third quarter (Tables 1 and 2).
Here’s another bit of analysis from Airlines for America, the industry trade group in the USA. It uses DoT data to track overall international fares since 1990 (a subset shown here).
These are overall averages for all international travel, not just peak season transatlantic. Still, the numbers make it hard to believe that getting peak season airfares at below average rates is going to work out well very often.
There was one slightly off-topic aside in the conversation which was also rather entertaining:
Apparently relatively normal airfares are, in some cases, shocking.
Don’t get me wrong – I don’t like paying very much for airfare and when the fare is too high I either don’t travel or I go somewhere else. But I also go in to the transaction knowing what to expect and being able to tell if I got a good deal or not rather than just expecting that fares are always so low. At the end of the day I guess I’m just surprised how low some people think airfare should be to be considered reasonable.
No wonder the airlines are struggling to eke out profits. For too long passengers have become used to the cheap fares offered as a result of excess capacity and increased competition. Mergers and ATI deals have cut almost all of that out of the system. And with the impending US Airways/American Airlines merger and Delta/Virgin Atlantic ATI request working their way through the regulators the competition is going to decrease. It is good for consumers that the airlines are able to remain in business. But that will mean higher fares, more crowded planes and fewer choices, all of which make for not-so-happy passengers.
After several weeks of speculation Delta, Singapore Airlines and Virgin Atlantic have come to an agreement which will see Delta acquire a 49% ownership stake in Virgin Atlantic for $360mm. Delta’s stake will come from Singapore Airlines; Virgin Group, headed by Sir Richard Branson, will retain their current 51% share and control of the company. The Virgin brand and operating certificate will remain intact. The deal is still dependent on approval from regulators on both sides of the Atlantic. The airlines expect the deal to close by the end of 2013.
Delta and Virgin Atlantic also intend to establish a joint venture operation for trans-Atlantic operations. The joint venture will not, at least for now, include other SkyTeam partners. It will, however include:
- A fully integrated joint venture that will operate on a "metal neutral" basis with both airlines sharing the costs and revenues from all joint venture flights.
- A combined trans-Atlantic network between the United Kingdom and North America with 31 peak-day round-trip flights.
- Enhanced benefits for customers including cooperation on services between New York and London, with a combined total of nine daily round-trip flights from London-Heathrow to John F. Kennedy International Airport and Newark Liberty International Airport.
- Reciprocal frequent flyer benefits.
- Shared access to Delta Sky Club and Virgin Atlantic Clubhouse airport lounges for elite passengers.
The joint venture will definitely give the combined carriers a leg up in the ultra-competitive London market. That said, the combined lift between London and New York City and Newark still doesn’t begin to reach the frequencies at British Airways/American Airlines offer. The 23 total flights daily between the USA and Heathrow will place Delta/Virgin in a solid second place, ahead of United’s 16 but well behind BA/AA’s nearly 40 daily operations.
From a passenger perspective the overall product should be very competitive in both economy and business class. Both Delta and Virgin Atlantic currently offer flat beds for all passengers in their business class cabins. For economy class the AVOD systems on both carriers should provide sufficient entertainment to distract the passengers from their tighter seating quarters. Virgin Atlantic has a proper premium economy cabin which Delta does not offer; there may be some work to reconcile that difference at some point. On the ground the Virgin Clubhouse lounges are some of the nicest business class operations, particularly in New York and London. Delta’s SkyClubs are not at the same level but in shared markets customers will have the benefit of access to both.
Delta has been looking for a way to get at more slots into Heathrow. They picked up a couple when British Airways was forced to divest them following their acquisition of bmi but that wasn’t enough to significantly change their operations. The partnership with Virgin Atlantic will open up access to many more slots eventually. And the price point was quite reasonable. Of course, Virgin Atlantic has been losing money in recent quarters so it might become a more expensive investment over time, but at least initially it looks like a positive opportunity for both carriers.
It is no secret that Singapore Airlines has tried to divest themselves of their 49% ownership stake in Virgin Atlantic from time to time. Might they have found a willing suitor in Delta Airlines? That’s what is being reported in the London media this weekend. To make the transaction work Delta would purchase the 49% stake, the maximum permitted by non-European parties, and Air France/KLM would purchase an additional stake. The SkyTeam partners would then hold a majority of the shares giving them control of the company. For Sir Richard Branson, the airline’s founder and public face it would represent the first time since he started the carrier nearly 30 years ago that he would no longer be in charge.
The move is almost entirely focused on gaining access to Virgin’s slots at London‘s Heathrow airport. The consolidation of British Airways and bmi has changed the competitive landscape at Heathrow making it even more difficult for Virgin Atlantic to compete, particularly without local and regional feed to their operations. A SkyTeam takeover of the slots and routes could see major changes to the destinations served and operational style.
Two years ago Virgin Atlantic hired outside advisors to help them explore options. Two years ago Deutsche Bank was hired to help the carrier consider different scenarios. Delta was linked to the discussions at that time as well but nothing came from it. Perhaps this time around the outcome will be different. Given the recent rumblings that Virgin Atlantic is looking to join one of the major alliances (and my guess that SkyTeam is the best fit) it really isn’t all that hard to see how having the carrier merge into the other airlines rather than just be a partner would offer some competitive advantages.
Keep your eyes and ears open; this one could be interesting…
The frequent flyer program of Hawaiian Airlines doesn’t have a ton to recommend it. The earning rates aren’t great. Neither are the elite benefits. And, most notably, the award chart has very few great values to it. By many accounts there was actually only one tremendous award they offered: North America to anywhere Virgin Atlantic flies in Upper Class for 140,000 points. Note the use of the past tense there. The Virgin Atlantic partner award chart was updated in the past couple days (the old one was definitely there 3 days ago when the Virgin America partnership was announced), devaluing the awards by huge margins.
Here’s the old award chart, courtesy of MileValue.com:
And here’s the new award chart from the Hawaiian website this morning:
For starters, awards appear to be priced as to or from London, not from the mainland USA destinations Virgin Atlantic serves. This means getting past London from the USA now requires adding two awards together, one to get to London and then another to continue onwards. The Upper Class award from Los Angeles to London in Upper Class went from 100,000 points to 160,000; from New York City the rate only increased 25% to 125,000 points.
But if you want to continue on, say from New York City to Hong Kong or Mumbai, the rate is now 285,000 points, an increase of more than 100%. From San Francisco that rate is 320,000 points.
It is very, very rare that points ever increase in value. It has happened maybe once or twice that I can recall in the past decade. That’s why hoarding millions of points is rarely a smart move. But it is also rare that such dramatic devaluations as this one happen. Not unheard of, but definitely rare. All the more reason to spend ‘em when you get ‘em.
As London-based carrier bmi was wrapping up operations there was a bit of a battle over who would get the opportunity to own the remnants of the company. British Airways ultimately acquired the carrier, along with its highly coveted landing slot portfolio at Heathrow, but not without loud protestations from Virgin Atlantic. In the end, BA "won" the battle. Sortof.
Authorities in England have decided to award to all the slots BA parent company IAG is divesting as a condition of the merger to Virgin Atlantic. It is only 12 slot pairs, versus the 40+ pairs which IAG will get to keep and distribute amongst BA and Iberia. But the associated burden for acquiring the slots is also much lower. Virgin Atlantic doesn’t have to deal with folding up the bmi operations or the debt that came with the acquisition.
Virgin Atlantic has indicated that the final details of their schedule will take a bit of time to iron out but they intend to launch short-haul feeder service to their Heathrow hub with these slots. They will contract with another airline to operate A320 aircraft for them on the routes, including multiple daily frequencies to Edinburgh and Aberdeen, Scotland. This service is in addition to the previously announced plans to fly to Manchester.
Maybe Virgin Atlantic didn’t win the battle. But is also doesn’t seem that they completely lost either.
It looks like the days of independence for London-based carrier Virgin Atlantic may be coming to an end. Speaking in an interview with Bloomberg in Mumbai on Friday Richard Branson indicated that the carrier is looking to join up with one of the big three and that "to survive we need to have an alliance." So, which will it be??
There’s virtually no chance of oneworld being the alliance. The vicious competition between Virgin Atlantic and British Airways, as well as the massive domination at Heathrow, simply exclude that from reasonable consideration. Singapore Airlines holds a huge minority stake (49%) in the carrier and Singapore is a member of Star Alliance. But that doesn’t necessarily mean they would join up. In some ways it is better for Singapore Air to have the diversity of their investments in both alliances rather than just one.
There are two levels of membership in the alliances these days; which level of participation Virgin is looking to reach could drive which they ultimately join. As just a member the competition issues are relatively minimal. There will be codesharing and frequent flyer reciprocity but that won’t severely shift the competitive balance in the market. If Virgin is looking to join one of the Anti-Trust Immunity (ATI) agreements, however, that will likely change things significantly.
Getting in to the ATI will require approval from government authorities on both sides of the Atlantic. Those approvals are rather more strict and look at the competitive balance more significantly. At first blush SkyTeam is more likely the winner if ATI membership is desired. Star Alliance has many more destinations in North America served from London than SkyTeam does. And Virgin’s lack of short-haul service means that, for the ATI, it is all about London.
Keep your eyes and ears open on this one…it will be interesting to watch.
Having lost partner bmi to British Airways, UK carrier Virgin Atlantic is looking to recover some the domestic feed it uses to fill long-haul flights. Starting in March 2013 the carrier will operate thrice-daily service between London‘s Heathrow airport and Manchester using leased Airbus A319 planes. British Airways currently operates 13 daily flights on the same route.
Virgin Atlantic is hoping to secure some of the coveted take-off and landing slots at Heathrow which British Airways must divest as part of the bmi merger. In the mean time, however, they will use some of their existing slots to handle the scheduled service. This means other routes may be trimmed; the affected flights have not been detailed at this time.
There are approximately 1800 daily passengers in the London – Manchester market and 60% of those continue on to long-haul flights according to Virgin Atlantic CEO Steve Ridgway. With bmi no longer able to help feed traffic into the Virgin Atlantic network it is necessary for the carrier to find another way to get some of those passengers into their long-haul routes. Running their own planes seems to be the way to get it done.
Given the frequent "fun" competition between British Airways and Virgin Atlantic it will be interesting to see what happens in the market as this service is launched. Things could get interesting.
The Wall Street Journal has a piece out this week discussing the ever shrinking number of first class seats flying around the world. They’re calling it a "long, slow death" and focus on the change from a First/Business/Economy model to a Business/Premium Economy/Economy model among a number of carriers.
For decades, international first class was a symbol of self-indulgence in the sky, several rungs above its domestic cousin, which tends to be closer to economy class, but with free alcohol and bigger, cushier seats.
The top-drawer service, however, has been disappearing from U.S. airlines for decades. Of the more than 500 aircraft U.S. airlines regularly fly to Europe, Asia and South America, just 27% offer first class.
And there is plenty of truth in the story. The number of seats marketed as First Class is definitely decreasing. But from the perspective of "self-indulgence in the sky" things would seem to be a bit different. Business Class today is, by most measures, a more comfortable in-flight experience than First Class was 10 years ago. From that perspective First Class isn’t really dead; it just has a different name.
Virgin Atlantic was one of the first carriers to tackle this issue. Their Upper Class product was revolutionary when it was launched. The in-flight and ground services paralleled (some aspects better than others) First Class offerings from their main competitor, British Airways, while being sold as a Business Class product. This allowed them to attract a number of corporate contracts and build quite a loyal customer base. The passengers were happy to get the solid in-flight product and the accounts were happy to be buying Business Class seats.
The trend has continued and other carriers have cut their First Class offerings while upgrading Business Class significantly. Most have also matched the Virgin approach of naming it differently. BusinessFirst, Envoy and BusinessElite are the product names that Continental, US Airways and Delta introduced. The product has continued to improve, making Business Class a very comfortable and pleasant way to fly.
Sure, there are still some exceptional First Class products out there. The Emirates A380 suites are quite enjoyable and taking a shower while flying is both wonderful and ridiculous, for example. Even when flying on points I generally find it hard to justify the incremental cost to get into First Class. The "special" benefits don’t outweigh being able to travel more often for me. And with the number of folks willing to actually pay the incremental costs (points or cash) to get from Business to First is so small it isn’t hard to understand why the airlines are cutting the product from their fleets.
After all, many are replacing it with something better, even if it has a different name.
Now that the necessary government approvals have been received for the absorption of bmi into IAG, parent of British Airways, the company is confirming its exit date from Star Alliance. In just two weeks’ time – April 20th is the target date – bmi will withdraw from the global alliance group as it transitions into the IAG fold and the sale is completed. The company released a FAQ on its Facebook page with some information.
Nothing particularly surprising in the FAQ, really. They note that existing award reservations will be honored, which is only appropriate. They have also stated that they are working to extend some alliance benefits for members, even after they leave the group:
Q. After completion will I still be able to use my benefits on other Star Alliance carriers?
bmi is working with Star Alliance member carriers to ensure that once bmi begins to withdraw from Star Alliance there are opportunities for Diamond Club members to continue to receive certain benefits on the Star Alliance network for an agreed period of time. We will update you as soon as more information becomes available.
This would likely apply to lounge and baggage benefits for top-tier elites, a useful set of benefits to keep as existing tickets are cycled out of the system. Cutting those benefits when they existed at the time of ticketing would be most unfortunate for passengers.
Oh, and Virgin Atlantic is still considering an appeal of the approval, though it seems unlikely to have any impact.
Anyone have a suggestion for what to do with 58K Diamond Club points??
It was August 2010 when Virgin America announced their plans to offer reciprocal earning and redemption benefits with the other carriers in the Virgin brand. Alas, the frequent flier market works slowly in some cases and after more than a year there was no real news on the redemption side of the deal. That ends this week, with both Virgin Atlantic, Virgin Australia and Virgin America announcing redemption rates.
I’m focusing on the the rates for Virgin America here, mostly because I find the ranges they cover to be more intriguing than the numbers from the other two. Virgin America has published a calculator that displays the number of points required based on the city pairs that the two partners serve. Even more interesting to me, however, is that the underlying data is contained in a singe easy to download
XML JSON file. Drop that file into Excel and throw some filters on it and the data that comes back is quite interesting indeed.
First up, both one-way and round-trip redemptions will be offered. That’s the good news. Unfortunately, there is a penalty for one-way awards relative to return trips. The penalty is generally 5-10,000 points, based on the samples I saw, though one or two did go higher than that, especially in premium cabins.
As for the actual redemption rates, there are definitely some interesting sweet-spots on the chart. JFK to London return is only 35,000 points in Upper Class, for example, which is pretty nice. The down-side is that it also comes with $1100 in taxes and fees to be paid. Also, it is more than double the price of an economy award on the same route (15,000 points + $650 in fees). The fees do track directly with what Virgin Atlantic charges for a revenue booking (the APD and the YQ are both higher in business class) so that’s not completely ridiculous, but with base fares as low as $120ish round trip in economy dropping 15,000 points seems like a REALLY bad idea.
The real fleecing in the program, however, comes when you try to redeem for Business Class awards on Virgin Australia AND you add a connection in the United States. Los Angeles to Brisbane is a rather reasonable 80,000 points up front. Want to connect onward to Chicago? Tack on another 100,000 points. And if you want to go to JFK rather than Chicago it is an extra 50,000 on top of that. Yeah, it is that ridiculous.
And the taxes aren’t particularly great on those fares either. At least the transcon penalty on Virgin Atlantic is only 15,000 points.
Comparing the rates to the value via American Express Membership Rewards – one of the easier ways to accumulate Elevate Points – shows further examples of the limited value. Getting that JFK-London award is 35K Elevate points, which would mean 70K MR points. Redeeming via ANA would allow the same trip for 63K points and roughly the same fees. JFK-Capetown would be 190K MR points via Elevate or 115K via ANA.
Adding these partners is a great thing, in theory, for members of the Elevate program. With the redemption charts the way they look, however, the numbers are not particularly attractive. I’d stay far, far away.