The FAA is back up and running and tax collection is beginning again, but some people are still angry. Most airlines decided that instead of passing along the tax savings to customers, they’d simply raise fares and keep the difference. I’ve seen some discussion about how the airlines really blew this and should have passed savings on the consumers for a variety of reasons. I disagree.

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]

We’ve all been waiting to see what cool stuff Google would do once it closed its recent purchase of ITA Software, and now we’ve seen our first change. How awesome is it? It’s not. At all.

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 mid-March, you might remember that US Airways decided to lower fares from Rochester to a bunch of cities and said it would monitor them to see if it was the right move. Now that we have two months under our belt, how are fares looking? It’s a mixed bag, but some low fares remain while others are long gone.

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.

It’s earnings season again, and that means it’s time to gather round and listen to every airline talk about what’s happened and what’s next. After seeing some of the earnings call summaries, it sounds like demand will, as usual, plummet after the summer. But airlines are mostly continuing to keep from adding too many seats, and that means you shouldn’t sit around waiting for any incredible deals.

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.

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.