Excess Baggage

Robert Julian figures he has flown 2.5 million miles on Delta Air Lines in the last 15 years and spent more than $250,000 with the carrier. Julian, the president of a Montana energy company called Power Procurement Group, says he once even viewed Delta as a business partner.

Not anymore. In a scathing letter to Delta last month, Julian decried the wide gap between business and leisure fares, long-standing restrictions that preclude business travelers from getting discount seats and the “indifference and arrogance” shown by Delta toward such complaints. His frustration, he wrote, also applies “to the airline industry in general.”

“I’m not one to write letters, and this letter came after a considerable amount of deliberation,” Julian said in an interview. “But I got to the point where I hated to do business with any company that treated their customers that way.”

Delta confirms the letter and defends its business fares and service. But Julian is not alone.

The whole business travel community has been slowly boiling over rising fares and declining service and has launched a quiet rebellion by finding cheaper alternatives to full-priced tickets--or by not flying at all.

There is a steadily growing gap between the airlines’ unrestricted business fares and what the 43 million domestic business travelers are actually paying, now that they are increasingly adopting online booking, advance reservations and other money-saving techniques.

That gap, in effect, represents corporations’ protest against what the airlines keep charging for full-fare tickets.

“The business traveler feels they’re getting gouged,” said Tom McCabe, travel services director at PerkinElmer Inc., a Boston-based maker of high-tech instruments. And what further irks many business fliers is that they don’t sense that the airlines feel compelled to do much about it.

But the airlines are in for a big shock, some corporate travel experts say. Even when the economy recovers, business travel will remain subdued until the airlines cut fares and otherwise reform the business fare structure to make it simpler and more closely aligned with leisure prices.

Business travel was slumping well before Sept. 11. The attacks, and the plunge in air travel overall that followed, certainly gave companies even more reason to slash their travel budgets. But business travel, and the airlines’ financial health, already were nose-diving as the U.S. economy was slipping into recession.

The airlines note that the business travel slump--the key reason the major carriers continue to lose millions of dollars a day--reflects much more than fares. Companies still are capping travel spending because of the weak economy, and they remain wary of long delays caused by heightened airport security checks, the carriers say.

Expectations are high that the economy finally will recover this year, automatically triggering a renewed surge in business travel that would help the carriers rebound.

Not so, assert some corporate travel experts.

“The carriers are learning the hard way that when corporations don’t get the prices they want, they are willing to find alternatives to traditional commercial travel, or they’re willing to stay home,” said Marianne McInerney, executive director of the National Business Travel Assn. “Common sense illustrates to all of us that the right thing to do is create pricing that attracts the customer back onto your plane.”

*

Example: Black & Decker Corp.

“We’re interested in lowering costs regardless of whether we reduce the number of trips” taken by employees, said Barbara Lucas, a spokeswoman for the Towson, Md.-based maker of power tools and household fixtures.

From Sept. 11 to Feb. 10, Black & Decker’s travel spending plummeted 40% from a year earlier, and its employees took 35% fewer trips. In just the last two months, the company’s pace of travel has picked up somewhat, but its spending on travel remains 20% below a year ago, in large part because Black & Decker is booking more tickets online and pressing for bigger corporate discounts, Lucas said.

Companies are saving on airfare not only by booking online but by booking further in advance and agreeing to have workers change planes more often to obtain leisure-type discounts. They also are making more use of videoconferencing and the telephone.

“The airlines don’t get it,” said Kevin Mitchell, head of an advocacy group, the Business Travel Coalition, and a frequent critic of business fares. “The airlines think the falloff in business travel is a one-for-one with the falloff in the economy,” but the companies’ migration to online ticketing and other direct booking services is a policy change intended to save money “for years to come,” he said.

And even though companies are saving cash using such techniques, the airlines still must lower their prices, McInerney asserted. Companies increasingly are unwilling to tolerate spending $1,500 for a business class seat that is next to a leisure passenger who paid $300 for the trip.

“It’s the same plane, the same seat, the same meal, the same movie,” McInerney said.

“For the airlines’ future success, they’re going to have to realize that business travel no longer supplements low leisure airfares,” she added.

The airlines counter that it is not as simple as just slashing business fares, especially with the airlines already in such financial straits.

“If we did that, we could put our company out of business potentially,” because tests have shown that lower fares sparked insufficient added business traffic to offset the lower income the airlines received, said Tom Bach, a Northwest Airlines vice president who sets the carrier’s pricing.

“That’s also why you don’t see any airline jumping on the bandwagon” to simply cut prices across the board, he said.

The airlines also contend that business fliers should pay a higher price, in exchange for the airline holding seats for them. In a response to the complaints of Julian, the Delta customer, Delta Chief Marketing Officer Vicki Escarra noted that business travelers “demand a high level of flexibility in scheduling and often wait until the last minute to book their tickets.”

“Your central complaint is your view that Delta tries to charge the highest prices it can to some business passengers,” and that is “at least partially correct,” Escarra wrote. Delta tries “to find the right balance” of prices and service that not only pleases its customers and beats the competition but also “generates an acceptable return for our investors,” she wrote.

But Delta, Northwest and other carriers have nonetheless been adjusting their business fares in a bid to attract more passengers without delivering a huge hit to revenue.

Northwest has “BizFlex” fares that offer fewer restrictions and deeper discounts if business travelers book ahead. The fares still require a one-night stay-over, but it doesn’t have to be the conventional Saturday night--so businesspeople don’t have to stay away from home over the weekend. Some other carriers also have abandoned the Saturday night stay-over and offered promotions for business fliers who book at least a week in advance.

BizFlex “has been received quite well” and now accounts for 6% of Northwest’s passenger traffic, Bach said.

(Business passengers overall typically account for about 35% of airline traffic but generate the bulk of the carriers’ income.)

“We also think about whether there should be a restructuring of the walk-up [full-price] business fares,” but they are not financially justifiable, he said.

In the past, typical business passengers hopped on a plane at the last minute, and the airlines made them pay much more for that unrestricted, walk-up ticket than they charged leisure travelers who booked well in advance or agreed to a Saturday stay-over. But starting in the late 1990s, as business fares were escalating, corporate passengers began to revolt.

“Since 1996, business fares have risen 78%, and I have yet to find another consumer product where that’s happened over the past six years,” said McInerney of the National Business Travel Assn.

And as those full-fare prices have risen, business travelers have flocked to online booking, advance reservations and other tools used by leisure fliers to get cheaper seats.

American Express Co.’s travel services arm says surveys of its clients show that the “typical business fare”--one that’s fully refundable and has minimal restrictions--averaged $580 for a one-way trip in December, virtually unchanged from a year earlier. Yet the average fare paid by business travelers in December was $273, down 13% from a year earlier and the lowest fare since early 1997.

Also, the $307 difference between the average posted business fare and the actual fare paid in December has more than doubled from the $143 gap of early 1997, American Express’ figures show.

Even if the airlines were to slash their posted business fares, they probably would have to raise leisure fares to make up the difference--and risk a drop in demand among leisure passengers who themselves are still not flying as much as a year ago. And with many major carriers still losing several million dollars a day, right now they can’t afford to get less revenue from any passenger.

But when the economy improves, will business travelers stomach that gap between business and leisure fares and start flying more often anyway?

“I’m not confident at all that’s going to happen,” said McCabe of PerkinElmer. “Not until the [airlines’] pricing model is changed, and they tell corporate America that it no longer has to subsidize leisure travel, are you going to see a resumption of business travel.”

Still, the airlines are paying closer heed to the problem, he said.

“I’ve had discussions with two airlines in the last two weeks, and while I can’t say who they are, both indicated that this [fare controversy] is an A item” on their list of priorities, McCabe said. “I think they’re terrified at what’s going on.”