R O O M TO MOVE : Strange as it sounds, American Airlines is hoping to fill its biggest planes with fewer people--and still get the edge on the hotly competitive transpacific route.
When American Airlines began transpacific service in May, it entered one of the most competitive, though money-making, commercial air routes in the world and it felt that it had to do something special to attract passengers.
The Pacific is a region where passengers who pay fares near the top of the price range outnumber those on low revenue-producing charters and group tours. Also, overseas fares are regulated by government agreements so, unlike the discounts resulting from the cutthroat competition within the United States, there are few cut-rate fares. As a result, the sale of a seat generates relatively more income.
“It is the fastest-growing (airline traffic) region of the world,” said airline analyst Paul Karos of the New York brokerage L. F. Rothschild, Unterberg, Towbin. “Everyone wants a piece of it.
“The airline industry is saturated on the Atlantic . . . . In the domestic United States, competition is keeping fares low. The airlines are going for the area that has the possibility for demographic growth. On the Pacific, you can make more.”
American wanted a piece of that action and, to drum up business, it had to offer something that passengers could not get on other carriers. Besides, because of the nature of the route it was granted by the Department of Transportation, it had to persuade travelers to detour through Texas to get to Tokyo. So it decided to give them more room--lots of it--in and between their seats.
For its six weekly flights between Dallas and Tokyo, American needed longer-range planes than the DC-10s and 767s that made up its fleet of wide-body jetliners, so it bought two 747-SPs. The SP (special performance) version of the aircraft is smaller than other 747s because it has one entire section removed from its fuselage.
The airline paid about $30 million each for the aircraft--buying one from Trans World Airlines and the other from the sultan of Brunei--and, according to Wesley G. Kaldahl, American’s senior vice president-international, it spent an additional $4 million each overhauling the jets and equipping them with everything from new galleys and lavatories to seats made of leather and lamb’s wool.
The cost of refurbishing was about the same per plane that United Airlines paid for refurbishing when it purchased Pan American World Airways’ Pacific routes early last year. It cost United $70 million to make necessary changes in the 17 aircraft that came with the deal.
It is business travelers that American is targeting, particularly in its effort to fill its spacious seats. For it is the business traveler who spends more and flies more. But the business traveler also demands more tender loving care--and that includes more seat room.
The airlines are going after the business traveler for a very important reason: While a tourist might visit Japan once in a lifetime, business travel is repeat business.
“The clientele we are appealing to is at the upper echelon of the market,” Kaldahl said. “On such a long trip, companies send their best employees. The companies are willing to spend the money so these employees can work and be comfortable for 13 hours. We laid out a strategy. We asked ourselves, ‘What market are we appealing to and what does it take to attract it?’ ”
Though its single route to the Far East is still fairly insignificant compared to the route networks of its competitors--notably Northwest Airlines, Japan Air Lines and United Airlines--initial acceptance has been good, Kaldahl said. Last month, and so far this month, American has filled an average of 85% of its seats on the flights to Tokyo. The airline needs load factors in the high 60s to break even, he added.
But American’s competitors maintain that it is bucking up against a number of obstacles. For one thing, many foreign airlines it is competing with are subsidized by their governments. For another, they say, travelers may choose to fly to Japan and other East Asian destinations on other airlines through such hubs as Chicago, New York, Los Angeles or San Francisco, which they describe as more convenient and more accessible.
Furthermore, some of the other airlines have been serving the region for so long that American will have a difficult time fighting the brand loyalty of carriers such as Northwest, which has been crossing the Pacific for more than 40 years, and Japan Air Lines, which lures the bulk of Japanese business travelers and allows American travelers to get the flavor of Japan even before they arrive there.
“American wants to negotiate (to obtain) other routes to the Far East,” said a spokesman for a competing U.S. carrier who asked that his name not be published. “So this (first route) will be a loss leader.”
Added William Berry of Delta Airlines, which also inaugurated Japan service recently: “It is not going to be a real moneymaker for those (American Airlines) folks. We are struggling on our route from Atlanta, using Portland as a gateway.”
But American, recognizing the obstacles, decided to lure passengers by cutting the capacity of its two 747-SPs--making the planes and the seats roomier. As a result, they have 29 first-class seats, 78 in business class and 78 in economy for a total of 185, considerably fewer than the 250 to 300 that such planes normally carry.
The 747-SPs that United Airlines flies on its Pacific routes can carry 233 passengers--47 in first class, 100 in business and 86 in economy.
Kaldahl concedes that the relative spaciousness of the two American jets may have to be reduced if passenger demand for the new flights proves too great. The highest load factors are in business class, he said, so American might add some seats in that section by taking out the two stand-up bars now located in that part of the planes. The number of passengers could then reach 235, he said.
Concierge Service
But, for now, American’s passengers have more room in all classes than do its competitors’ passengers.
The width of first-class seats on American’s 747-SPs is 20.5 inches, compared to 20.2 inches on United. The “pitch”--the distance from a fixed point on one seat to the same point on the seat immediately in front or in back of it--is 56 inches in American’s main first-class cabin and 57 inches in the upper cabin; on United’s planes, the first-class pitch is either 55 or 54 inches, depending on individual seat placement.
In business class, where the comparison is most remarkable, American’s seat width is the same 20.5 inches that first-class passengers enjoy and the pitch is 40 inches. United offers a business-class seat width of 19 inches and a pitch of either 37 or 38 inches. Seats in American’s economy class are 17.9 inches wide compared to United’s 17 inches; the economy class’s pitch is 34 inches on American and either 33 or 34 inches on United.
Because fare differentials between economy and business class are relatively small, American hopes that its emphasis on the business-class traveler will pay off as companies allow their employees to make the step up from economy. The difference between business class ($842) and economy ($741) on the Tokyo flights is only $101 each way. In contrast, the difference between first class ($1,641) and business class is $799.
The competition for Pacific-route passengers is intense in ways other than passenger space. Each carrier is trying to come up with unusual amenities for business travelers that its competitors do not offer.
United, for instance, has just inaugurated “concierge” service. The concierges will do the same kind of chores that such functionaries would perform at hotels on the ground. They even carry postage stamps in case passengers want to mail something in the last minute just before the plane’s doors close. United also recently began exchanging currencies on its Pacific flights.
Japan Air Lines will supply its passengers with calling cards printed in English on one side and either Japanese or Chinese on the other. The cards (for which a charge is made) are delivered to passengers on arrival at their East Asian destination.
Load factors on Pacific air routes already are generally higher than those in many other parts of the world. Northwest Airlines, for instance, flew its planes 70.5% full on these routes in the three months ending June 30. That compares to a 66.3% load factor for Northwest’s domestic routes in the same period and 67.45% on Atlantic routes.
Because the planes are fuller on the Pacific flights and the distances they travel without landing are greater, yields (the average amount of revenue received for carrying one passenger one mile, expressed in cents) are higher.
For the second quarter, Northwest’s yield totaled 9.71 cents on the Pacific routes, compared to 8.26 cents on the Atlantic. In the first quarter of 1986 (the most recent figures available), yields for all of the American carriers averaged 10.36 cents in the Pacific, compared to 9.44 in the Atlantic, according to Airline Economics, a Washington consulting group.
Higher Fuel Costs
As a result, Northwest makes more profit in the Pacific than it does anywhere else. Of its $59-million net income in the third quarter of last year, $37 million (62%) was derived from the Pacific routes.
The higher yields are even more striking when one considers that the airlines’ cost of doing business is considerably higher on the Pacific flights than on Atlantic routes.
The costs of fuel and aircraft maintenance and handling are higher in East Asia than elsewhere; crews must rest longer between flights because of the greater distances, and accommodations are much more expensive.
Another expense for the airlines is the commission that they must pay travel agents and tour operators to get the business. As a result of the intense competition in the area, these commissions sometimes run as high as 40% of the ticket price, much higher than for travel in other parts of the world.
