In the Trenches: Preparing for Vacation – Intuit Small Business Blog
I’m not taking a break anytime soon, but I’m working toward that goal in a few months.

Airline Fee Changes Require Full Disclosure – NBC Los Angeles
I met up with the folks at NBC4 here in LA to walk them through some of the changes from this week’s DOT rule change. Here’s the video:

View more videos at: http://nbclosangeles.com.

Guest Post: Top 10 US Airline Stories of 2011 – Bangalore Aviation
The guys at Bangalore Aviation asked me to do a guest post for them on the top stories of 2011 in the US regarding aviation.

In the Trenches: Tipping – Intuit Small Business Blog
We had a very happy client recently who decided we had earned more than we charged him. I had to figure out how to handle it.

You might think that all fare filing is a highly automated process, and much of it can be, but there is still plenty of opportunity for human error. In my days doing pricing at America West, I messed up twice.

The first was a web-only fare (back when airlines still did that) between Baltimore and Phoenix for less than $100 roundtrip. This was in the fairly early days of web booking, and we caught it quickly. I don’t think one seat was sold. With the other, I wasn’t so lucky.

I accidentally filed a $62 roundtrip fare between Indianapolis and Santa Barbara. I don’t remember which, but I had either left off the leading digit or the trailing digit. (Meaning it was supposed to be $462, or something like that, or $620.) A travel agent in Indiana found it and promptly told all his friends. We had sold a few dozen tickets before we found the error and fixed it. In the end, we honored the fare, but I always got ribbed for it.

Filing mistake fares is sort of a rite of passage. It wasn’t a matter of “if,” but “when” you would do it. I fortunately never filed the dreaded zero-dollar fare, but in a way, those are easier. Those are very clearly mistakes and you can probably get away without honoring them.

But for other mistakes, it’s more murky. The latest flub came from Korean Air. I only know about this because I received three different emails on the subject from people who were rightly furious with the way it was handled.

Back in September, Korean filed fares from the US to Palau for between $485 and $560 roundtrip all-in depending upon the origin city. This is clearly an unbelievable deal, and had to be a mistake (others say it’s plausible, but it’s really not). Korean had it out there for 3 or 4 days before they found it and pulled it. A FlyerTalk thread clearly had people warning that it was a mistake fare, but of course, everyone jumped on it with the hope that Korean would honor it. (I don’t blame them at all.)

Now, once an airline figures out it made a mistake, it pulls the fare and then decides whether to honor it or not. There is no set rule on how this should work, and every airline handles it differently. After the fare disappeared on September 6, people waited to see what would happen. Nothing happened, so the assumption was that the fare was being honored. People started booking hotels, making plans, etc.

Then, on November 7, two full months after the fare was purchased, Korean Air sent an email to everyone saying that the fare wouldn’t be honored. The process would be as follows:

Korean Air is offering affected customers a full refund of the fare paid, or the opportunity to purchase a ticket on the same itinerary at a fare equal to the lowest fare offered by Korean Air in the market, or the closest similar market, during the past year.

Korean Air also is reimbursing customers for expenses incurred as a result of having purchased the incorrect fare, such as cancellation fees for flights, hotels, ground transportation, and other arrangements.

In addition, Korean Air is offering those passengers a $200 travel voucher for a future flight to any Korean Air destination from a U.S. gateway.

Now, had Korean put this out the day after the fare was found, then it would probably be acceptable. Oh sure, some people think that airlines should honor a mistake fare no matter what, but to me this seems like it would have been a generous response. But doing it two months later is just ridiculous.

Sure, this means people won’t be out any money, but it fails to account for the fact that people made plans that can’t easily be replaced. Some people scheduled this as their trip over the holiday period. Others picked long weekends. There was one person that was even planning on leaving on November 16. This was canceled a mere 9 days before departure.

Now what do those people do? It will be significantly more expensive to plan a different vacation for the holidays, so people are effectively screwed out of having a real vacation during that time. Again, had Korean canceled this on September 7, then it wouldn’t be a big deal. But this is bad.

So what the heck happened? I’m told that the problem was that Korean wanted to do this right, and that means the airline did it wrong. See, the airline took so long not only discussing internally what to do but also checking with regulators to make sure they were following any laws that might exist, that by the time a decision was made, two months had passed. And that’s how they ended up in the predicament.

By “favorite,” I don’t mean I look at those proposals that are great. I’m talking about those that seem outrageously misguided to me. The point of the program is a good one. Unlike Essential Air Service which just continuously plows money into small city routes, SCASDP is a short term funding plan that requires serious justification. The money should be used for helping to jumpstart new service through revenue guarantees, marketing, etc. There are a few uses but the point is the same. Money is meant to help get a project on its feet, but it won’t be there forever.

There have been successes. SCASDP has been responsible for successful long-running routes from Akron/Canton and Santa Rosa, for example. These are routes that airlines might not have tried on their own, but with the financial backing initially, they found them to be winners. And plenty of airports are trying to do just that right now. Many of these are small cities trying to get connected into a hub. Others are trying to get low cost service, often from Frontier this year it seems.

So which ones stood out for me? Here are 9 of the goofiest ones. I’m sad to say that three of these actually got awarded a grant. Oy vey.

• Albany, New York (WON) – Albany wants money to fund a flight to Houston, but that seems like a waste to me. It already has service from United and Southwest to several cities so it has access to their networks without having to go to Houston. Seems to me that the feds should have looked for proposals that would have had more of a network benefit than this, but the feds liked it and it got partial funding.
• Arcata/Eureka, California (LOST) – Like every other airport, Eureka complains of high fares on its sole flights on United to San Francisco and Sacramento. So what’s the solution? It wants nonstop flights to Denver, on United, the same airline that has high fares today. All this would do is hurt United’s existing service and make the market weaker overall. It won’t lower fares. Delta failed with flights to Salt Lake and Alaska/Horizon failed down to LA. This market just can’t support more service right now, it would seem.
• Bakersfield, California (LOST) – I don’t even get this. Bakersfield wants money to support 2 props a day up to Sacramento on Great Lakes. Without any connecting feed in Sacramento, this is bound to fail. There is a strange suggestion that there will be another 20 people connecting to Portland or Seattle. Really? I can’t see it – people going there would probably just take an existing airline that actually offers online connections.
• Bemidji, Minnesota (LOST) – I’ll give these guys points for creativity. They seem to think that people don’t fly out of Bemidji because they don’t know the airport has flights. So what will they do? Create a travel desk to book flights for people in Bemidji and those coming to town. This just isn’t going to do much since we all know that people coming to town aren’t going to call Bemidji to have flights booked. And locals should know the airport exists – they just drive because it’s cheaper or flights are more convenient from other airports.
• Casper, Wyoming (LOST) – Casper thinks that fares are too high on the short flight down to Denver on United. So what does it want? It wants Frontier to come in to lower fares. It says it asked United to lower fares to levels seen during the 1990s and early 2000s but was rebuffed. Apparently it forgot that fuel has spiked dramatically. So if Frontier comes in, what happens? It could push United to run away because lower fares will destroy the market. Then Casper would be pretty unhappy.
• Dubuque, Iowa (WON) – I love Dubuque because it has had some great, creative proposals in the past that didn’t win. So what happens? The city comes up with a not-so-good one and it wins. Go figure. Dubuque has been losing service and now it only has American Eagle flights to Chicago. What does it want? American flights to Dallas. This won’t help fares and it will likely weaken the Chicago flights by pulling people away. There’s limited additional benefit to Dubuque, but guess what? It’s going to get a shot to see if it works.
• Flagstaff, Arizona (WON) – Flagstaff is like many small cities in thinking that it’s perpetually underserved and it deserves better than what it gets. In this case, that’s turboprop flights to Phoenix. It also says fares are too high. In fact, it says the average fare is $58 one way higher than Phoenix. That doesn’t seem too unreasonable to me, but Flag thinks it knows that the premium should only be $30 to $35 one way. So Flagstaff wants a new airline to come in. It did have Alaska/Horizon to LA for a brief time but that failed. Why would some other service work? It won’t. But it won a grant, so we’ll probably see someone else come in soon.
• Mammoth Lakes, California (LOST) – Mammoth gets the brass balls award for having the gall to ask for this one. It has been subsidizing year-round flights, but it doesn’t have the money to continue. Without more money, the non-winter flights will probably go away, so it wants the feds to pump more money in. If the service doesn’t work now, then why would federal funds make it work? It wouldn’t.
• Marquette, Michigan (LOST) – Marquette is on the Upper Peninsula of Michigan, meaning it’s basically Canada. So it wants service to the state capital, Lansing, because you can only get there via connections today. The problem is that a Marquette to Lansing flight will never have enough demand to support itself, ever. So why bother throwing money down a hole to subsidize it for a short time knowing it won’t work? There’s no good reason.

In the end, the feds selected 29 winners. That means more than 40 percent of applicants got a grant. Not too shabby. There were some winners that I liked to see. For example, I think Auburn/Lewiston, Maine had a good pitch for finally getting its first scheduled flights. I also think Latrobe, Pennsylvania has a good case for trying to further build its newly-acquired flights from Spirit. In fact, I’d say that this year, I probably liked what the DOT did more than in previous years, though clearly we still have some strong disagreements. That’s no surprise. Read the full list of grants here.

But congratulations to all the communities that won new service. Even if I’m skeptical in some cases, I hope that you can all make it work.

[Original photo via Flickr user Jeff Samsonow/CC 2.0]

On its recent earnings call, Alaska said that it had seen its paid First Class loads factor rise by two points in the last year, and revenues went up by 20 percent on an only 7 percent increase in seats. Good news all around. How did they do it?

Some of it is thanks to the more long-haul flying that the airline does. People may not care about First Class for the less than two hour flight from San Francisco to Portland, but they sure care a lot more on a 5+ hour flight to Hawai’i or a long haul from Seattle to Newark. Hawai’i in particular has really ramped up in the last couple years to become a major part of the airline’s route map, so that alone can make a big difference. But it’s more than that.

Alaska President Brad Tilden noted that back in the day, the First Class cabin barely earned its keep even though the fares were really high. Then this happened:

. . . we brought the First Class fares way down, I think our current add-on over the [full coach] fare is $150 in the longest stage length market. I think our customers have really responded to that value. We’ve gone from maybe from 1 to 1.5 [First Class] seats per airplane to four or five [First Class] seats per airplane. And we’ve also done a lot better with the upgrades, the fares that our mileage plan customers are paying to sit in first-class. And if neither of those work, we are selling first-class upgrades at the gate. I think we had a 20% increase in first-class revenue in the second quarter, and we are doing it in a way that our customer, I think, feels like they are getting really good value.

The decrease in fares isn’t a recent thing, but since it was brought up in the call, I thought it was worth discussing.In the end, this has resulted in a big revenue increase for the airline, and that’s great for everyone involved. The airline makes more money by selling more high fares, but the customers win because those “high” fares are lower than they used to be. This was the same kind of thing we did at America West back in 2002, though that was for the entire fare structure and not just First Class. The result, however, was the same.

So why don’t other airlines follow? Well, other airlines have a different passenger mix. Some of the big old legacy carriers actually sell more of those First Class seats, so cutting fares and increasing demand might actually result in dilution. It’s really an airline-specific type of thing, and only those airlines that don’t sell a ton of the high fares can afford to cut them down.

If you’re Alaska and you’re only selling 1 First Class seat per flight, you can cut the fare in half as long as you sell at least two of those tickets. Then everyone’s a winner. And that’s apparently exactly what’s happening here.

One of the arguments is that airlines like to complain that they’re overtaxed and that demand would be much higher if they didn’t have such a burden. So this was the perfect chance for them to show exactly what kind of benefit could be had, right? Some airlines did just that.

Both Alaska and Spirit passed savings along to customers and they saw big increases in bookings. Alaska showed a 26 percent increase in week-over-week bookings while Spirit showed a 22 percent increase in the early days. Some of that has to be due to the publicity they received for this move, but it was also the short term nature of the deal. There was never a question that taxes would be coming back, so people rushed in to buy before that happened.

That being said, I’m sure that lower fares were the cause of some stimulation. That’s always what happens thanks to simple supply and demand. When fares go down, demand goes up. The problem in this situation, however, is the supply side of the equation.

Within a couple of months of travel, the airlines pretty much have their schedules set. They’ve looked at the demand out there and put out the right number of flights, or at least as best they can see in advance, for the months ahead. In other words, the supply of seats isn’t changing unless something major happens (like the 9/11 attacks) to require a major, urgent shift in capacity. With that set, the airlines work hard to manage demand to fill that supply of seats with the highest revenues possible. If demand is particularly strong and growing, then they can add capacity but that’s more of a mid to longer term move.

When the taxes disappeared, the impact was bound to be short-lived (though longer than it should have been). So you have a two week window where taxes are lower, what can you do as an airline? You aren’t going to be able to add capacity for such a short term thing, so why would you want to pass on the tax savings and stimulate demand? You don’t have the supply to handle any demand increases anyway.

Instead, you should just keep the price to the consumer where it was before, since that was the right price to fill the capacity you were putting out there. Now you just make a little gravy on top while filling your seats exactly as you thought you would previously.

Of course, many will argue that it’s a fairness issue. I’m guessing that’s why Alaska passed the savings on. It just seemed like the right thing to do, or something like that. It’s a feel good thing that probably makes sense for the airline and its brand. But why is that the “fair” thing to do? If the government decides not to collect money, why is it that the traveler should get to keep the money and not the airline? Sure, Congresspeople want to whine and complain about it even though they were the ones who screwed up in the first place, but there’s no real reason that the money should have to go to the traveling public.

For Spirit, I think it’s a different issue. It’s not a fairness issue but rather more of a brand image issue. Spirit has been fighting very hard against the belief by some that its model of having a la carte pricing is not consumer-friendly, but this helps in the fight against that image. Spirit is more than happy to compartmentalize everything. You pay for what you want on that airline. It’s like having separate building blocks where you pick and choose the pieces you want to make the airline ticket you want to have. If the tax “block” goes away, then the airline is not going to reallocate it. So this helps Spirit in its quest to better explain its model and get some positive PR as well.

In the end, each airline’s goal is always to make as much money as it can. For a couple of outliers, that meant giving tax savings to the customer to further their brand proposition. But for most, without the ability to add more capacity, it made sense to raise fares to maximize revenue in the short term. If taxes disappeared permanently, then we’d see a different story because airlines could adjust capacity to match such a structural change, but that’s not what happened here.

Should the airlines have used this as a way to prove to the feds that taxation is killing demand? Why bother? There’s no chance at all that the feds would change their tune. But then again, Alaska and Spirit showed that anyway. No need for others to jump in.

[Original photo via Flickr user planetc1/CC 2.0]

Now, when you do a search for something like “LA to Chicago,” you get this:

That’s right. It just gives you a big, gnarly list of the nonstop flights that operate within the next week. There is no fare information and there is very little detail. It only shows the departure time, arrival time, airports, airline, flight number, and days of operation. In other words, it’s just straight schedule information and that means it’s not even using ITA Software for anything. (I should note that this doesn’t dominate the whole page – you have to click a box to expand the results.)

So, who does this help? Um, I guess someone who needs the next flight to Chicago? Google says in a blog post that this can help people plan summer vacations. Give me a break. It doesn’t give availability or pricing information at all. That makes it completely useless. It’s certainly far less useful than the previous setup which had a search box that you could use to find fares on a few different websites.

What if you really do just want flight schedules? Isn’t it somewhat helpful? Not really. I mean, it only works for travel within the next week. I tried “LA to Chicago August 10″ and nothing came up. In fact, most of the results on the first page were for restaurants while a couple were about Cubs/Dodgers games. There wasn’t a single travel-related result.

This is also only available if you type in cities with nonstop flights. I tried “LA to Birmingham” and got nothing. The first two results were for the LA Quinta Inn in BIRMINGHAM. The only air travel-related result was for FareCompare down toward the bottom.

I honestly can’t figure out why Google bothered with this. It’s usefulness is minimal at best, and it certainly doesn’t deserve a spot at the top of the results. Let’s just hope that when Google does start implementing some of what ITA can do, it’s a lot better than this.

In the US Airways internal newsletter from the end of March, it said “These fare reductions will be analyzed over the next two months to determine whether an increase in passenger loads is sufficient to offset the decrease in fares.” It’s been two months. Here’s where things stand:

You’ll probably want to click on that chart to see it full-size, but what you’ll see is that largely across the board, last minute fares have stayed low while leisure roundtrip fares have shot up. The most interesting thing, in fact, is that advance purchase fares have virtually disappeared from the market. Now, nearly everything is a walk-up fare, though the lowest fares do sometimes at least require a roundtrip purchase.

Why would US Airways do that?

This is all speculation, but what US Airways may be finding is that by lowering its last minute fares, it was getting more of those last minute business travelers on its airplanes. That means the airline has fewer seats to fill with leisure fares. If leisure demand remains strong, then those remaining seats can be filled with leisure travelers at those walk-up fare levels.

You might think that this means US Airways has one fare in the market, but that’s certainly not true. There are just a lot of different walk-up fares. In the Rochester to Philly market, for example, there are six different fares. The lowest requires a roundtrip purchase and a one night stay. The next three are non-refundable and the last two are refundable. Those are the only differences.

You might not think this makes any sense, but US Airways can just use its revenue management system to decide how many seats to sell at each level instead of relying on hard-coded fare rules to make the decision. It gives the airline more flexibility, but it also requires that more attention is paid to the process.

Is this the final state of things in Rochester? I doubt it. Nothing is final when it comes to pricing. But if you’re looking at it from a business traveler perspective, it’s good news so far. From a leisure traveler perspective? It’s not nearly as cheap as it was. But let’s check again in a couple months to see where things stand. I’m marking it on my calendar.

First, I should say that I can’t stand listening to earnings calls. They take forever and I don’t have the patience. That’s one of the many reasons I subscribe to PlaneBusiness. I can skim the transcripts, get some analysis, and spend a lot less time on it. Since PlaneBusiness is a subscription site, I can’t link directly to any of the info on there, but that’s where I pulled most of this.

One of the more interesting calls for me was Delta’s. These guys were very direct about the state of things. From PlaneBusiness:

[Delta CEO Richard Anderson] then said that where the airline cannot get the “necessary revenue increases to offset the increased cost of operating the flights” the airline is going to remove capacity — particularly in its post-Labor Day schedule.

“We have announced that we are reducing capacity by 4 points from our original plan for the second half of 2011. This will result in our post-Labor Day system capacity being down 4% year-on-year,” he explained.

In other words, things are looking strong enough for this summer that you won’t see much of a cut. But as soon as the summer travel hoardes are gone, the flights will go as well. The worst of it? Trans-Atlantic flying. There’s too much capacity there and it’s going to get hacked after the summer.

In addition, we’ve already been told that Memphis will be losing about 25 percent of its flights as the hub shrinks dramatically. Most of those will be Connection flights to small cities. We just had a Cranky Concierge client fly from Huntsville to Austin via Memphis the other day. I’m guessing that won’t be possible after Labor Day rolls around, but the details haven’t been released yet.

While Delta may have been the most clear about its plans, it’s a safe bet that others will follow along as well. Most other large airlines are following similar strategies of being very careful with having too much capacity out there. I say “most” other large airlines. As Delta made very clear on its call, it doesn’t see American acting the same way.

After a Wall Street analyst asked how Delta would defend its share of the corporate business in the face of American’s 21 percent capacity jump in New York and 8 percent in LA, Delta CEO Richard Anderson came back at him.

We are not going to focus on chasing market share. We are focused on operating margin because operating margin ultimately is what our shareholders want us to produce. And so trying to take market share with very poor operating margin and negative cash flow doesn’t work for Delta.

He ended this by saying, “This isn’t a hobby.”

Some very strong words there, and it shows a discipline that we haven’t often seen in this industry. Smart strategies like this mean that there is less of a chance of having a bunch of empty seats that need to be filled with fare sales. So if you’re waiting for that fall deal, it may not be so easy to find this year.