Airline Deals Are Soaringby
With the U.S. recession raging, air fares sit at bargain-basement levels on many routes. Business travelers are being lured with double-mile promotions. And airlines are only deepening the discounts as they near the end of a dreadful winter quarter. In the past week, for example, a bevy of bargains has been unleashed: Qantas Airways (QAN.AX) is offering one-way fares between Australia and California for $299, and New York for $399. United Airlines (UAUA) is selling a new Moscow route for as low as $119 one way, before taxes and fees. American (AMR) has fares from Chicago to Dublin for $147.
Moreover, based on moves by big players in recent days, there are relatively strong indications that bookings for the spring and summer—especially for business-class tickets—may be far softer than carriers had expected.
Through June 15, three airlines are offering double miles for "elite" travelers. These are mostly road warriors who rack up 50,000 or more miles per year, usually on the same one or two carriers. On Mar. 18, American said it would double those miles for elite members. United and Continental (CAL) have since matched the "double elite" promotion, also through June 15. In addition, American is offering 50,000 bonus miles for first- and business-class travel between the U.S. and London and Manchester through June 30.
Travelers are also likely to see more solicitations to upgrade for a fee when they check in. Continental and United have begun selling first-class upgrades at check-in. Continental charges $50 to $250, based on flight duration, while United prices according to supply on the day of departure.
These efforts reflect the intense need airlines have for business travelers, especially in the current environment. Those fliers typically spend and fly far more than leisure travelers.
The deals come as airlines warn of flagging revenues. On Mar. 20, United said its system-wide passenger revenue would drop by 11% to 12% in the current quarter. "The revenue environment continues to be challenging for all carriers, as the impact of the economy is affecting demand for both business and leisure travel," Chief Financial Officer Kathryn Mikells said in a memo to workers on Friday.
On Mar. 17, Continental updated investors about its own slipping revenues. "Largely as a result of declining business travel, the Company has experienced [year-over-year] yield degradation, which has accelerated sequentially since January 2009 and has become significant," the airline said. American, the second-largest U.S. airline, said quarterly revenue may be down more than 11%.
The declines came out the same week the International Air Transport Assn. reported that premium travel fell by nearly 17% in January, worsening from a 13.3% decline in December. (The category covers first-class and business-class travel.) "The trend in travel overall is still downwards with, as yet, no bottom to the decline in sight," the association said.
All of that means a push to move inventory—that is, seats—especially in the front of the plane. Continental is selling many one-way, first-class fares to Europe for the summer high season for less than $900 from Newark for travel between June 28 and Sept. 4. American is also dropping business-class summer fares to Europe, beginning at $1,001.
"The fact that average premium fares are falling faster than discounted economy fares on some markets—e.g., within Europe—is a measure of how severe the downturn in business travel has become," the airline group said in its report.
On the leisure-travel front, one tactic to goose demand has been a "short sale." US Airways (LCC) and United have both held three-day sales in the past week, with steep discounts on off-peak travel days but only 72-hour windows in which to book. Southwest (LUV) launched a summer-fare sale on Mar. 19 for travel through Aug. 14. Those fares must be purchased by Apr. 6.
By discounting summer travel—usually the busiest and most profitable season for the industry—in March, Southwest has forced rivals to match on competing routes. That could potentially harm whatever profits the industry was hoping to reap in the summer. "Many carriers may have been hoping to take a wait-and-see attitude on ticket pricing as the summer season gets closer," Rick Seaney, who runs Dallas-based Farecompare.com, wrote in an e-mail.
All of this means that, come late summer, the most oppressive heat could be on airlines' financial statements.