The Brancatelli File
BY JOE BRANCATELLI
Each evening from Manhattan to Seattle
Before you drift to sleep in your hotel
Think back on all the tales you may remember
Ask every flyer if he's heard the story
Then tell it strong and clear if he has not:
Yes, once there was a fleeting wisp of pricing
I know it gives a trav'ler pause
But in AirfareLot, AirfareLot
There were no fare-code flaws.
Where once fares never gouged the frequent flyer
By being sane and selling only four
The airlines got it right
Then only out of spite
In one brief, awful season
They demolished AirfareLot
May 9, 2002 -- I flatter myself trying a Lerner and Loewe knockoff--and I surely lionize the cowards running the major carriers by retelling airline history to the reprise of Camelot--but this week I want to talk about "Value Pricing," which for one brief, shining moment in 1992 restored sanity to airfares.
I tell you this bluntly and without fear of rational rebuttal from the frightened little men who are driving the major carriers into the fiscal abyss: Business travelers will not return to the seats of the major airlines, and most of those airlines will not survive, unless the industry quickly adopts some form of Value Pricing.
If you were living in a more congenial spot back then, Value Pricing was the initiative of Robert Crandall, then the chief executive of American Airlines. On April 9, 1992, he strode into the ballroom of a New York hotel, swept away about 15 years of slush from the airline hillsides and announced a pricing plan with just four fares.
He also did a damned good job of condemning the pricing system he was about to replace.
"Higher and higher full fares and an ever-growing array of discount fares surrounded by an ever-changing plethora of restrictions simply do not work," he claimed. "Business travelers, who have watched unrestricted fares skyrocket, have had enough.
"They are rebelling against a system they perceive to be unfair, which imposes unacceptable constraints on their ability to obtain a reasonable fare--like forcing them to stay away from home on a Saturday night. They're not shy about telling [airlines] how much they dislike the restrictions and complexity--and how stupid they think [airlines] are for having created something so unacceptable."
I know this sounds a bit bizarre coming from an airline executive, but that is what Crandall was saying a distant moon ago.
"Customer surveys," he continued, "reflect rising anger about a system which denies travelers the flexibility they want and need--flexibility to go when they want to go, come back when they want to return, change plans in between--and not pay more for the privilege than it's worth.
"The system, quite simply, is broke!"
Crandall wasn't just skewering a system we all hated back then and despise even more now. He was ridiculing a system that he basically created. It was on his watch that American pioneered deep-discount, heavily restricted fares and created yield management. It was his pricing strategy that permitted what seemed scandalous in 1992: a $1,166 difference between American's full-coach transcontinental fare of $1,504 and its lowest fare of $338.
"Does that make sense?" Crandall asked a decade ago. "Of course it doesn't--and it's turning off lots of business travelers."
His solution? The self-consciously named, but otherwise seminal, "Value Pricing" program. There were just four fares per route (first, coach, and 7- and 21-day advance purchase). There was balance (the cheapest seat was usually 49 percent less than the full-coach fare, which American had reduced about 38 percent), fairness (all the specialty, holiday and gimmick fares were gone), equity (first-class fares were reduced 20-50 percent), and rationality (leisure travelers paid less, but business travelers weren't gouged).
Sadly, like Camelot, Value Pricing was not long for this world. Like the flawed King Arthur in Lerner and Loewe's musical, Crandall chose to fight the wrong war for the wrong reasons. In a fit of pique--and with American's truly reprehensible knack for corporate arrogance--Crandall inexplicably matched and expanded a Northwest Airlines gimmick promotion. Displaying his ugly penchant to play industry disciplinarian, Crandall turned the Northwest promotion into a suicidal price war. Fares fell to $99 nationwide, airlines drowned in red ink and Value Pricing disappeared with the morning fog.
Business travelers have been paying through the nose ever since. After constructing Value Pricing, a brilliant strategy to "regain the goodwill of customers," Crandall's tactical blunder plunged us back into chaos. The fact that his 1992 rant remains eerily on target in 2002 is proof of the pain he has caused. And Crandall's current National Apology Tour--where the now-retired King wanders from speaking gig to speaking gig deploring the broken airline empire he created--is cold comfort indeed.
How little happily-ever-aftering has there been since Crandall built and destroyed Airfare Camelot a decade ago? Here are two relevant fare comparisons.
Let's start with Crandall's New York-Los Angeles example. The then-absurd disparity of $1,166 between the full coach ($1,504) and lowest fare ($338) is worse today. Full coach is $2,442 now and the lowest fare is $298, meaning the difference between us and them is $2,144. American doesn't have four fares in the market now, but at least 25 published ones and unknown dozens of Internet, corporate and unpublished prices.
New York-Chicago? It was $854 roundtrip in full coach then. Value Pricing cut it to $500, but today it's $1,458. American doesn't have four fares in the market, but at least 24, including a lowest-published fare of $178.
Value Pricing was right for the market in 1992. If not for Crandall's lack of discipline and American's corporate ego, there is every reason to believe it would have survived and prospered.
Some form of Value Pricing is right for the market in 2002. And if the major carriers ever want to get back to their version of Camelot (read: profits), they'd better start preparing a reprise of AirfareLot.
That's how conditions are.
This column originally appeared at JoeSentMe.com
Copyright © 1993-2004 by Joe Brancatelli. All rights reserved.