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 The Brancatelli File

joe GIVING AN INCH AND
CHARGING THREE YARDS


BY JOE BRANCATELLI

June 5, 2003 -- First, the bad news: More room in coach at American Airlines is dead, on every flight and at every seat. Forget the airline's dissembling, partial withdrawal announced late last month. By this time next year, you can bet your aching knees that American will be back to 31 inches of legroom.

Next, the good news: American's decision to cap first- and coach-class fares on some routes presages the creation of a fairer, flatter pricing structure. When the dust clears, American will emerge as what it hopes will be the very model of a modern major carrier: Coach fare structure and service at or near the standards set by Southwest and JetBlue and premium classes with comparatively affordable, walk-up fares.

Finally, the coulda-woulda-shouldas: American could have made More Room work if it hadn't allowed corporate arrogance to once again obliterate a good service initiative. And it would have been able to save More Room even now if only it had adhered to its own dictums about what travelers should pay for the privilege of flying American.

Don't be surprised that American is axing its clumsily named "More Room Throughout Coach" initiative. The airline signaled the change when it announced the retirement of its obsolete Fokker jets. Never a favorite of frequent flyers, the smallish Fokkers at least had first-class cabins and the More Room configuration of 34 inches in coach. In almost all markets, however, American has replaced the Fokkers with all-coach American Eagle regional jets offering just 31 inches of pitch.

American neglected to mention that switch last month when it ludicrously claimed that More Room will remain available on 80 percent of its departures. And don't believe for a second that the switch to Less Room on Boeing B-757s and Airbus A-300s is where American will now draw the line. One by one, each of American's fleet types will be stripped of More Room. It took American almost two years to pull the seats out of its coach cabins. The retreat to Less Room can't be accomplished all at once, either. Converting one plane series at a time is simply a tactical approach to the mechanics of the process.

"You can't sell an airline like American with two kinds of pitch in coach," one AA executive told me the day after the Less Room announcement. "We've got enough trouble trying to differentiate our product without trying to explain why some planes are comfortable and others aren't."

So what's American's game? Phase in Less Room tactically because that's the only way you can do it, publicly deny that you're making a strategic retreat and, while competitors are trying to figure out what the hell you're doing, buy enough time to recreate the fare structure.

And that's the good news: One of the reasons American is wedging us back into knee-crunching coach seats is that most of the carrier's management is finally convinced that only a simpler, fairer, flatter fare structure can generate new revenue for American Airlines. About this time next year--or maybe sooner if braver AA pricing gurus have their way--American will implement a fare structure that pretty much mirrors the Southwest/JetBlue approach: six or eight coach fares that aren't strangled by convoluted purchase rules that depress discretionary leisure travel or hobbled by stratospheric walk-up prices that depress legitimate business-travel demand.

American previewed a version of the new fare structure on the three New York-California routes where it altered prices at the same time it made the Less Room announcement. American capped coach fares at $299 one-way, the new de facto maximum pioneered by JetBlue. But the real news was in first class, where American capped one-way fares at $599.

American didn't have to cap first-class fares because it doesn't compete with discounters up front. But the goal was to tell frequent flyers: You want seat comfort and some cosseting? We now have a reasonable first-class price.

That's what American sees going forward: Walk-up prices competitive with discounters at the back of the bus and a new regimen of affordable fares up front.

"Most of us are now convinced that the old pricing systems can't be fixed," an AA executive told me last week. "The new model is simplicity in coach and affordability in first so we can actually sell some seats up front instead of giving them away as upgrades. We hope that means more revenue."

Which is where we come back to the extra seats being wedged into coach. Critics who say that it's stupid for American to add coach seats because they aren't selling the seats they already fly aren't looking at the facts. As it has shed jets and frequencies, American's load factor--the percentage of seats filled--is rising. American filled 73.7 percent of its seats last month, a jump of 4.1 points compared to last May. May's load factor was also ten points higher than its 63.7 percent load factor in January, 2000, the month before American announced More Room.

If American is right--lower, simpler fares will generate badly needed extra revenue by increasing traffic--it needs to find additional seats. By "de-peaking" its hubs, American has increased the number of hours each plane can fly. That means more seats. But with few new jets in the pipeline and none of its parked planes deemed cost-effective to recommission, American believes it needs the 12-15 seats that it will squeeze back into each of its existing aircraft.

All this makes sense to me. For travelers who want the lowest possible fares, American will offer simple coach prices and industry-standard coach seating. For business travelers who want more comfort, there will be an affordable fare for a seat in a premium class.

Still, there are the coulda-woulda-shouldas. We could have had More Room in coach if only American hadn't been so arrogant. It never made More Room the centerpiece of the airline's strategy. It allowed More Room to be sabotaged by sporadic and often uninspired advertising; unfocused, ham-fisted marketing; the disastrous TWA acquisition; the recession; and then the denial and paralysis of the post-9/11 period.

How badly did American manage More Room? One small, personal example. Almost 18 months after American first announced More Room, I bought and flew two dozen segments and then wrote a column raving about it. American was thrilled and posted the column on its internal Web site. But when I tried to forward American some of the thousands of E-mails I received from frequent flyers who said they hadn't tried More Room because they had never heard of it, American wasn't interested. It's corporate policy: American is never interested in hearing from business travelers.

And then, of course, there were the fares. Departed American chief executive Don Carty was always fond of saying that he was convinced travelers would pay 35 percent more to fly American. So why didn't American ever put that maxim into practice? If American thinks $299 one-way is a fair price to pay for Less Room on flights between New York and Long Beach or Orange County, California, why is it charging $1,233 to fly with More Room between New York and Los Angeles? That's 312 percent more. And $311 for each extra inch.

When they write the history of the failure of More Room, someone ought to remember that. More Room might have succeeded if only American didn't try to get away with giving an inch and charging three yards.

This column originally appeared at JoeSentMe.com

Copyright 1993-2004 by Joe Brancatelli. All rights reserved.