Winging It: Boston-to-Philadelphia Fare War no Sign of Recovery

Monday, February 22, 2010

For travelers in the Philadelphia area, Southwest Airlines provided some great news last week – and it had nothing to do with its dustup with a movie star over its obese-passenger policy.

 

Much more significant than the too-fat-to-fly debate over actor-director-writer Kevin Smith’s losing his seat was Southwest’s plan to start nonstop flights between Boston and Philadelphia in June, a move I and others predicted when the airline started flying to Logan Airport last year.

 

Within hours of Southwest’s announcement, the cost for a nonstop flight on one of the region’s most heavily traveled routes dropped by almost 90 percent from US Airways’ standard fare. Passenger counts between the cities are likely to soar, as they do each time a low-cost airline starts flights on a route that had been dominated by an older hub-and-spoke carrier.

 

But do announcements of new routes – and there have been numerous others from airlines in recent weeks – mean the travel business is out of the recessionary woods?

 

Airline customers and people in the travel industry I’ve spoken to recently say that even if traffic were to surge in a few new markets, that isn’t a sign that the business is returning to 2007 levels.

 

Business travelers, from those at big companies to the independent contractor paying her own costs, are still watching expenses closely, traveling less, and working all the angles they can to save on airfare and hotel and rental-car costs.

 

The trends this year “are the same as they were in 2009,” said DeAnne Dale, vice president of sales and account management for Travelocity for Business, a unit of one of the leading online travel agencies. “Companies are really watching their spending and will continue to do so throughout the year.”

 

Airlines have coped better than some other travel vendors by eliminating routes and employees, parking airplanes, and “unbundling” what customers pay to fly. Unbundling means separating charges for airfare from fees for such things as checked bags and the best seats on a plane.

 

Many airlines now are getting 10 percent to 20 percent of their revenue from fees and charges – for checked bags, premium seats, food bought on board, and numerous other services or amenities once included in the ticket price.

 

The rapid adoption of these fees has left many organizations, especially big ones that closely monitor their spending, completely bewildered about what they’re really paying for each trip.

 

For instance, companies can get detailed reports from their travel agencies on how much they’re spending on fares and hotel rooms, but they have no good way to keep track of what all the company’s travelers are paying in bag fees.

 

Dale said only a limited number of companies with big air-travel budgets have been able to strike deals with airlines for discounted fares that include some additional services, such as bag fees.

 

Trying to make sense of the fees has become a cause for the Radnor-based Business Travel Coalition and its chairman, Kevin P. Mitchell.

 

He put together an informal “Industry Solutions Group” last fall that includes representatives of U.S. and European business travel suppliers and customers to recommend standards for reporting the costs.

 

“Unbundling took off like a rocket in the U.S. in the past year, such that the whole industry was caught off guard, without systems and processes to properly identify, manage, and control these expenses,” Mitchell said in a background paper he wrote for the group.

 

Many companies are having more success in keeping hotel costs down than air costs, largely because the lodging business has been hammered by the recession even more than airlines. Hotel rates are lower than they were a couple of years ago.

 

In a typical result, revenue per available room for Philadelphia-area hotels (that’s the average daily rate multiplied by the percentage of occupied rooms) dropped more than 15 percent last year from 2008, according PKF Consulting.

 

But unlike airlines, Dale said, hotels catering to business travelers have been “very aggressive with offering amenities,” throwing things such as free wireless Internet, breakfast, and parking into a corporate rate.

 

Kevin Iwamoto, vice president of Philadelphia-based StarCite, which provides technology for planning and running meetings, says the recession also has prompted many companies to focus on saving money on group events.

 

Compared with a year or two ago, there is much more “destination analysis” today, Iwamoto said. The process involves calculating what it will cost to house and feed participants at a meeting, and how much they will have to spend to fly or drive to the destination.

 

That kind of analysis has helped some places hit hard by the economy, such as Las Vegas, to recover business. Many groups canceled plans to meet in Vegas last year after AIG came under fire from politicians for lavish corporate spending while living off bailout funds.

 

Because of a huge supply of hotel rooms and convention facilities, and reasonable airfares aimed at the leisure market, “holding a meeting in Las Vegas is probably more cost-effective than any other place in the country,” Iwamoto said.

 

Look for a forthcoming column on another recession-related trend: Avoiding travel altogether using a new generation of high-definition video technology.

 

-Tom Belden

The Philadelphia Inquirer