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 The Brancatelli File

joe FIX THE FARES
AND WE WILL FLY


BY JOE BRANCATELLI

October 28, 2004 -- One of the factors destroying the Big Six is their intractable opposition to fixing their Byzantine fare structure that depresses profitable leisure travel, curtails legitimate business travel demand and confuses everyone.

One of the other factors destroying the Big Six is their unwillingness to accept the fact that fixing the fares is one of the only sure paths to survival. They stubbornly ignore the fact that the only consistently profitable carriers are rational-fare airlines such as Southwest, JetBlue, Frontier and AirTran. They blithely dismiss the fact that America West has gone from the brink of extinction to a string of profitable quarters after simplifying its fares.

And then there is Aer Lingus, which last month layered a simple fare system atop its already remarkable tale of post-9/11 survival and profitability. Since the Dublin-based airline became the first international carrier to adopt the aeronautic equivalent of "keep it simple, stupid," I thought it appropriate to get a 30-day update of Aer Lingus' progress.

Well, "Surprise! Surprise!" as they used to say down in Mayberry. It seems that if airlines fix the fares, we will fly.

"The bottom line," says Jack Foley, the New York-born executive vice president of Aer Lingus, "is that our revenues are up and our costs are down. At least so far, the market is telling us we got it right because we made it simple."

Okay, the "revenue is up" part I can understand. Those of us who are not airline "experts" or revenue-management wazirs have been suggesting that for years. But "costs are down"? How does a simplified fare structure drive down costs?

"I don't think anyone in the business fully understands how much it costs to support the old pricing," Foley explains. "It's all kinds of little things. Do you know how many return seats go out empty because we used to force people to buy roundtrips to get the lower fares? Do you know how much money we spent doing [corporate] contracts with the old fares? Now doing a contract takes no time at all because the fares are so simple."

And there is also every indication that the new approach to fares--all Aer Lingus prices are one-way and no coach seat exceeds $503--is stimulating traffic. Foley says he has already seen double-digit traffic increases on his longest haul U.S. route, the nonstop from Los Angeles.

"The way things have been going in the last couple of weeks, we may have to look at our capacity and see where we can find some more seats," Foley says.

One of the reasons for the traffic boom, Foley admits, is that no other carrier has matched his fares to Ireland--or, just as importantly, perhaps--his fares to Europe over Aer Lingus' Dublin hub. "It's exciting to look at the pricing matrices and see us at about $300 or $400 and the nearest competitor at $1,000 or more," he also admits.

Most telling of all, at least for those of us who have long suggested that simplified fares would stimulate legitimate business-travel demand, is what Foley says that Aer Lingus has experienced in its Premier business class.

During an average month under the old fare regimen, Foley said he sold about two Premier class seats from the United States to Ireland at the AerLingus.com Web site. But now that business-class fares have been slashed to around $1,100 one-way from Boston, $1,300 from New York or around $1,500 from Chicago or Los Angeles, online bookings have soared. About 150 Premier tickets were sold at AerLingus.com in the first week after the fares changed.

"I was doing about 50 percent load factor up front before," Foley says. "Now I'm waitlisted on some flights."

Another good sign: Several Aer Lingus clients have reversed their coach-only policy and are permitting travelers to fly up front.

Two other comments from Foley strike me as amazingly revelatory about the power of an understandable, rational fare structure.

"Doing it the old way, we had maybe 10 or 15 [coach] fare buckets that ranged from around $100 to more than $800 one-way," Foley explains. "That was a big spread and people resented it. Now that we've capped it at $500, when the lower fares are sold out and you only have the higher fares available, people accept it because it doesn't seem like a rip-off."

And then there's this: "Doing it the old way, we always used to obsess about whether other airlines matched our fares, whether we were matching the other guys," Foley says. But now the relationship is between us and the market, not us and the other carriers."

To me, the totality of this is undeniable: Fix the fares and we will fly. Southwest knows it. JetBlue knows it. America West knows it. And now Aer Lingus knows it. Ignore the bloody obvious, as the Big Six is so good at doing, and the bleeding will continue no matter how much they cut costs, slash service and beat concessions out of their employees.

"Look," says Foley, one of the rare Americans working at a profitable airline, "I'm not saying we got it all right. We still have work to do and tweaks to make. It's only 30 days. Things can happen. But the market is clearly saying we got it right. They like what we've done and they are supporting it."

This column originally appeared at JoeSentMe.com.

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