Getting bumped gets more lucrative – CNN Out of the Office
If you get bumped against your will, compensation is rising, but that could also mean higher fares.

In the Trenches: Building Our Own Tech Tools – Intuit Small Business Blog
Sometimes, you just have to start building your own tools when off-the-shelf options don’t work.

The Department of Justice approved the Southwest/AirTran merger without any changes this week. The DOJ said it had no concerns about an anti-competitive impact from the merger. Do you agree? Are you surprised that it sailed through?

On the surface, Alaska Airlines seems like a company that Americans would love to hate, yet exactly the opposite is true. People love Alaska, and it’s no accident. Let me explain.

Think about everything going against the airline. First of all, it’s an airline. Hating every move an airline makes is actually required in the US in order to graduate from high school. If, however, you build a brand as a low fare airline that eschews fees like Southwest, then you get a pass. Alaska is not that airline. Alaska looks more like a traditional hub-and-spoke airline. You’ll pay to check bags and fares aren’t rock bottom. Want inflight entertainment on a long haul? That’ll be $14. How about food? You’ll pay for that as well.

Last quarter, Alaska had an epic meltdown when its computer system failed and thousands were stuck. As if that’s not enough, Alaska is posting record profits. In the first quarter, Alaska had an operating profit of nearly $134 million. Its operating margin was nearly 14 percent. That’s a rock star result.

Were any other airline making that kind of money, people would be screaming bloody murder. Employees would be clamoring for fair treatment and better pay while customers would demand that the “outrageous” fees go away. But that’s not what’s happening here. And here’s why.

1) Alaska is Small
The bigger the company, the bigger the target it is. Think about oil companies. People love to jump on ExxonMobil and BP, but how many people hate, say, Sinclair Oil? Nobody. Well, I’m sure someone does, but it’s not vilified on a daily basis. Sinclair has gas stations in 21 states, so it’s certainly a visible name, but it’s not in the cross hairs when people think of big, bad oil. Being small also means that earnings don’t look so huge. Sure, Alaska had a great margin but its operating profit was only $134 million. Had United achieved a similar operating margin, it’s operating profit would have $1 billion. That just sound enormous.

2) Alaska’s Fees Seem “Fair”
It helps when other airlines set the bar for what the public considers to be greedy. It means if you do something below that level, you look like a hero. The big legacy airlines charge $150 to change a ticket. Alaska charges half that for changes made online. If you want to check a bag on Alaska, it’ll be $20 for each bag up to three. That may not seem that much cheaper than other airlines, but it comes with a promise. If your bag isn’t on the carousel within 20 minutes, you get compensation.

3) Alaska Operates Out of the Spotlight
Being based in Seattle means that people don’t really pay attention to you. Oh sure, the local papers will jump on stories when things go wrong, but you’re not likely to end up on the national news unless you really mess something up in a huge city like LA, New York, or Washington DC. Being in the Northwest insulates Alaska nationally, both when things are good and when they’re bad so it’s a mixed blessing.

4) Alaska’s Mileage Program is Flexible
Loyalists to Alaska’s Mileage Plan program are VERY loyal. There are so many mileage partners around the globe that members can use their miles to go just about anywhere. Those with MVP elite status get the same kind of benefits as other airlines give but with a lower mileage qualification threshold. (It’s only 20,000 miles to become MVP.) The program is also integrated with Delta SkyMiles to the point where elite members get priority boarding, better seating, and more. So it’s a program that can compete with the big guys and even provide better benefits by partnering across alliances.

5) Alaska Runs a Good Operation
For the twelve months ending February 2011, Alaska was second in on-time performance with 87.2 percent arriving within 15 minutes of schedule. There’s no question that the airline is helped by not flying much in horrible east coast congestion, but that’s not the point. Running on time means that there’s less for people to complain about. It doesn’t matter why you run on time. It just matters that you do.

6) Alaska Understands Customer Service
One of the most important reasons that people don’t hate Alaska is because when things go wrong, the airline is all over it. When computers failed, Alaska was pumping updates out constantly. Execs filmed a video apology and gave details on what happened. Alaska also encouraged everyone impacted to write in so that the airline could deal with compensation individually. It was an excellent effort all around and certainly reduced the negative impact that might have been felt by others in a similar situation.

I’m sure there are more reasons, and I’d love to hear everyone’s thoughts. I should make it clear that this doesn’t mean Alaska has a sparklingly perfect record. This is the same airline that in 2000 had one of its MD-80s crash off the coast of California. The resulting scrutiny over the airline’s maintenance created a ton of bad press and without question damaged the brand significantly. Alaska also took a hit after it laid off its 500 ramp workers in Seattle and outsourced the work to a third party. (It was later determined Alaska actually violated the union contract.) For these reasons, some people will always hate Alaska and I can’t blame them. But those people are in the minority today, and Alaska finds itself in one of the most enviable positions in the industry when it comes to customer perception.

Last week, the Department of Transportation (DOT) rolled out a bunch of new rules the are supposed to make the passenger flying experience better. On many of these, it seems downright silly that the government is involved, but there are are a few kernels of good in there surrounded by a sea of . . . well, not much useful at all. In fact, I would say that unless you’re a foreign airline, there’s actually very little that’s bad in here in general, though some of the so-called “passenger rights advocates” are probably steaming about some of the things that were left out. (You can read the final rule here.)

Let’s go through the changes. All of these go into effect in mid-August with the exception of the advertising rules which don’t go live until October.

Tarmac Delay Rules and Customer Service Plans Go International
When I said that there wasn’t much bad in here, I was mostly referring to the position of domestic airlines. For foreign airlines, this is a nightmare, and in fact, many contend that it’s not legal. The DOT shrugs it off, but this is likely to go to court since the foreign airlines don’t believe the US has the right to impose these rules upon them. Assuming it stands, here’s what happens.

Going forward, the long ground delay rules will now apply to foreign carriers that have the right to pick up American passengers on US soil. The only difference versus the rule as we know it today for US airlines? Foreign flights can sit on the ground for four hours before being penalized instead of the three in the current rule. Of course, most of the ones that have gone this long are usually related to customs and immigration problems. Coordination between the airlines and customs/immigration is now required as part of this rule.

Some of these rule changes really don’t matter at all. The ground delay rule, for example, will now also apply to all commercial airports in the US, but that doesn’t really matter. The problems are at the big airports where the rule was already in effect anyway. And airlines are now required to announce if passengers can get off the plane if they’re at the gate. Um, ok.

One thing that seemed to be a victory for passenger rights folks was the requirement that the long ground delay plan offered by the marketing airline would apply and not that of the operating airline. So if you bought a ticket on US Airways as a codeshare on Continental, then you’d now be subject to the US Airways policy. This, of course, is completely insane. Can you imagine if you have a passenger from every single Star Alliance airline codesharing on a United flight? There is no way that United could obey all of the different plans. So the DOT gave them an out and completely gutted the rule change. If the marketing airline says in the contract of carriage that the rule of the operating airline applies, then that’s just fine. So nothing will change here.

I do like the rule that requires update notifications on delays every 30 minutes. I mean, it’s a worthless rule since most airlines have a policy of updating more frequently than that anyway. If it’s not always obeyed now, this probably won’t change anything. You can’t make every single front line employee obey this very easily.

We also are now going to see foreign airlines being forced to adopt the customer service plans that US airlines already have. You know these (here’s Delta’s just in case). These are the rules that allow you to either cancel without a fee within 24 hour of purchase or hold it for 24 hours before purchase (now required only if booked more than a week in advance), they require prompt responses for complaints, etc. Now foreign airlines are going to have to develop these as well. I can’t wait to see how the DOT enforces this with some of these airlines. I do, however, like that these along with the contracts of carriage must be posted on the foreign airline websites.

One thing that the passenger rights people really wanted was a requirement to have this customer service plan put into the contract of carriage. The DOT denied that.

The Bag Fee Refund Rule Has No Teeth
We talked about the proposal to require airlines to refund bag fees if bags are lost or delayed here last week. Now the rule is out and it’s not nearly what it could have been. Bag fees now must be refunded only if your bag is lost. In other words, the rule suggests that you are paying the airline to deliver your bags, not deliver them on time. So if the bag is never delivered, you get your money back. That’s it.

Denied Boarding Compensation Goes Way Up
I wrote about this over on CNN this week, but in short, getting bumped gets more lucrative. Instead of getting 100 to 200 percent of your ticket value up to $800 you’ll now get from 200 to 400 percent of your ticket value up to $1300. You can see more about why this is good and bad over at CNN.

Full-Fare Advertising Now Required
One of the bigger changes is that advertisements now must include the full fare amount, including all government taxes and fees. Previously, airlines could advertise excluding some of the additional government charges as long as it was in the mice type at the bottom. Though requiring taxes to be included in fare ads is not something you see in many other industries, this one isn’t a bad rule. If it does actually apply to fare displays on websites, then it’s a good thing. There’s nothing I like less than seeing a fare in the booking process and then having a bunch of taxes and fees added on at the end.

Tightening Rules on Fees
One of the things that the DOT tried to do here is create some rules around how fees should be treated. Here’s a run down of what will change.

• Ancillary services that are added in at the end before purchase must be “opt in” and not “opt out.” In other words, if you see that box asking if you want travel insurance, you have to physically click on it or it won’t be included automatically as is sometimes done today.
• If bag fees change, then the change must be displayed on the homepage in some fashion for three months. In fact, there needs to be a permanent link on the homepage with a link to a page that shows all fees in general.
• All bag allowances must be included on the e-ticket receipt for every airline including the fee structure for bags. And if you’re traveling on a codeshare, then it must be noted which airline policy applies to the entire journey. (It can’t be multiple policies.)
• If a flight is canceled, the airline must refund fees unless the passenger is able to get that same service on a later flight. In other words, if you check a bag and are canceled, but your bags go on your rebooked flight, then no refund is needed. But if you paid for premium economy and then you get kicked back to economy on your new flight, that upgrade charge will be refunded.

Allegiant Loses the Flexible Fare Battle
You might remember Allegiant’s spirited defense of the right to be able to increase fares after a purchase is made if the passenger agrees in advance. I saw nothing wrong with that plan, but that’s not happening. Post-purchase fare increases are now banned.

DOT Doesn’t Get Involved in the GDS Battle
Yesterday, I wrote about the escalating battle between the airlines and the global distribution systems (GDSs). The DOT could have inserted itself into that battle by requiring that airlines disclose all their fee information in a standardized format to the GDSs, but it didn’t. It is not going to require airlines to disclose fees in that way to the GDSs.

Overall, many of these changes are minor and won’t have a big impact. There is some good in here too, but ultimately, I think it’s more for show than anything else. The DOT wants to look like it’s really working hard here to be on the side of the passenger. It looks like it is, but most of these changes are pretty weak at best . . . unless you’re a foreign airline.

I’ve been following the fighting between American and the global distribution systems (GDSs) fairly closely here, but I’ve yet to comment on the latest development. First, American decided to sue Travelport, but the big news is that now other airlines have decided to jump in. US Airways is suing Sabre, and this comes after the airline had just signed a long term renewal agreement with that GDS. What gives? The backstory is better than a soap opera.

If you need full background on this saga, I’d suggest starting with this post on why American wants to go around the GDSs. In short, to reach a huge chunk of customers (primarily corporate travelers), the airlines have to sign participation deals with each of the three GDS companies in the US. The airlines are now saying that the GDSs are holding them hostage because the GDSs are the gatekeepers to this large group of travelers and there’s no way around them and their monopolies. It’s a compelling argument. Let’s look at the US Airways suit more in-depth.

Recently, US Airways signed a multi-year deal for Sabre to sell its flights to all its travel partners. It was clear that US Airways was unhappy about this from the beginning. It responded to Sabre’s press release on the deal with a terse statement that it “disclaims any characterizations by Sabre of US Airways’ views of Sabre, Travelocity, or US Airways’ relationships with those companies.” What did it object to? Probably that “US Airways recognizes the value of the Sabre global distribution system and our innovative leadership in helping airlines market and sell their products.”

Now we know that a lawsuit was in the works. The story is a fairly simple one, and it shows an airline that had no choice but to sign with Sabre even though it clearly was unhappy with the terms of the deal.

Why do I say US Airways had no choice? Well, an incredible 35 percent of US Airways’ revenue comes in via Sabre. While some of this could be replaced since it comes in from online travel agents that have plenty of alternates, the biggest and most important chunk comes in from corporate travel agents that use Sabre as their sole booking source. Corporate travel is the lifeblood of most airlines since it’s full of frequent, high dollar customers. But much of corporate is done through corporate agencies and 85 percent of those agencies are locked in to a single GDS.

As we know by now, booking through these reservation systems can be expensive, and so airlines like American have been proactive about trying to pitch a “direct connect” solution that would bypass the GDS and save a boatload of money. Beyond saving money, it would allow the airlines to sell more than just a seat with things like premium seats, priority check-in, etc. But that’s just the tip of the iceberg. Not being dependent upon the GDSs would allow airlines to get more creative in how they sell in general.

So why can’t they kick the GDS habit? Because Sabre and the other GDSs have travel agents locked in. This is one of those goofy industries where the airlines pay booking fees to the GDS and the GDS then provides kickbacks to the travel agents to keep them onboard. In other words, the GDSs pay their customers to use them. Where else does that happen? With this type of relationship, it’s hard to get the travel agents to stop using GDSs and the GDSs use tactics to make it even harder.

Some GDS relationships require travel agency exclusivity, but even those that don’t still threaten to take away the kickbacks if the agencies start using other sources. The result is that no agency in its right mind would walk away when money is flowing in the door.

So why don’t the airlines just start paying the travel agents some of that money directly? They’ve tried. Back in 2005, for example, America West tried to offer agents a commission if they booked on the America West website. Sabre flipped out and increased rates twice in three months for those bookings that came through Sabre. America West couldn’t get all agents on Sabre to switch overnight, so the ones that remained on Sabre became so expensive that the airline had to back down.

Since Sabre holds such a large chunk of US Airways’ revenue, it’s impossible for US Airways to walk away. Because of that, Sabre can effectively demand anything it wants. And it does. US Airways had this to say about its most recent negotiations with Sabre in the suit:

Sabre’s monopoly power was witnessed most recently in its efforts to force US Airways to enter into a new contract with Sabre that contains numerous oppressive and
anticompetitive terms designed by Sabre to harm competition and entrench Sabre’s dominance. US Airways had no choice but to sign the agreement, which it did under protest, or face a complete shut off from Sabre’s network.

So what were these terms? We don’t know all the details, but there are some that are pretty clear. The biggest issue is that Sabre requires “full content” provisions in its agreement. In other words, any fares offered by US Airways in any distribution channel must also be provided to Sabre. You probably remember that there were a lot more web fares in the early days of online booking, but ever since this full content provision has been thrown in there, those have effectively disappeared. US Airways, along with every other big US airline, has no way to offer discounted or special rates on its website anymore, because Sabre and the other GDSs won’t sign an agreement without that provision.

In the latest negotiation, US Airways offered to pay a higher booking fee in exchange for the elimination of the full content provision, but Sabre declined. This full content provision is like a noose. It not only prevents the airlines from offering different fares on its website, but it even prevents the airlines from doing things that the GDSs can’t handle.

For example, when US Airways launched its Choice Seats program which allowed customers to pay a fee to sit in a better seat, Sabre couldn’t handle the functionality. Because it couldn’t handle the functionality, it tried to block US Airways from selling Choice Seats through any channel because of this “full content” provision.

As you can see, US Airways and the other airlines are stuck. So now it’s time to head to court to get the feds to agree with them that this is monopolistic behavior. Back in 2004, the feds had originally deregulated the GDS industry and that’s when this problem started. US Airways and American cite several examples of bad things that the feds warned were possible at the time. Now that they’re proving to be true, the GDSs are finally getting challenged. It’s now up to the courts to decide if this is unfair or not.

As you can imagine, the GDSs deny everything. They say this is a smokescreen that is really an effort limit customer choice and are trying to portray themselves as the heroes of the customer. I personally just don’t see it. Take a look for yourself.

If you want to see the US Airways case, it’s in the Southern District of New York as case 11 CV 2725. Update: Here’s a copy of the US Airways complaint. American’s filing can be found here.