Low Rates the Final Destination?

Nostalgic for the pubs of his youth, British expatriate Bill Hughes snapped up an airline ticket this week after a Santa Monica broker pitched a Los Angeles-London round-trip fare of $471 -- about half the cost of his last flight home.

While visiting Pasadena from Petoskey, Mich., Louise Sifford browsed at Distant Lands -- A Traveler’s Bookstore & Outfitters, shopping for vacation ideas that she will flesh out by scanning newspapers, travel magazines, e-mail newsletters and Web sites.

Veteran globe-trotter Ned Jordan of Woodland Hills starts his planning with the big online travel sites but nearly always finds himself digging deeper by going to Web message boards and discussion groups to ferret out deals for boutique hotels.

Bargain hunters -- spurred on by a customer-starved industry that has suffered through two years of terrorism, recession, war and, now, disease -- have become adept at snaring the best hotel prices and airfares. They have learned to book online, call third-party vendors and never end a conversation with a reservations agent without asking, “Is that your best rate?”

And it looks like Americans might not go back to their old complacent ways. That has the industry realizing just how difficult it could be to regain pricing control as international tensions ease, the economy improves and demand picks up.

The question is whether the barrage of deals and cut-rate specials, which started when the market began to soften even before the Sept. 11 terrorist attacks, has firmly trained consumers to shop around and wait until the last minute, which forces nervous airlines and hotels to put their products on sale.

“I don’t know that they will be able to put the genie back in the bottle very quickly,” said Carl Winston, director of the hospitality and tourism management program and San Diego State University. “There’s a fair amount of debate in the industry over what will happen when a recovery comes.”

In the meantime, travel shopping has become a giant game of find-the-best-rate.

Hughes said he learned that Virgin Atlantic and American Airlines, two of the five major carriers that fly from Los Angeles International Airport to London, were offering a low-ball fare -- $369 before taxes and airport fees -- from Brian Clewer of Continental Travel Shop in Santa Monica.

The carriers haven’t advertised the fare, widely out of fear that they would lose higher-paying customers.

Certainly, discounts have driven up business at Clewer’s agency. Before the Virgin and American fare sale, Clewer sold tickets to London at a rate of about eight a day. On Monday, he sold 57, including the one Hughes plans to use next week.

Betsy O’Rourke, a senior vice president at the Travel Industry Assn. of America, said price cutting has “conditioned consumers to wait until the last possible minute -- and they will save money in almost every case.”

That’s a reversal: Not so long ago, early bookers were the ones who got the best airfares and hotel rates.

These days, consumers purchase travel services in much the same way they shop for Christmas gifts. Conditioned by years of promotions and markdowns by the big retailers, shoppers often delay buying, hoping that stores will offer ever more attractive bargains as the holiday approaches.

“You see that perfect sweater,” said O’Rourke. “Do you buy it now or take the chance that it will still be there to purchase three weeks later” at a lower price?

“In the short term, that’s what is happening in travel,” she said. “Longer term, it is hard to say.”

One thing that is for sure, the experts say, is that consumers have gained an information advantage that will keep the pressure on prices for years to come.

“The biggest change is the Internet,” said Jordan, the Woodland Hills resident, who travels as much as five times a year.

“In the past, I would work with a travel agent, but now people can do it themselves,” he said.

Indeed, online travel sites such as Travelocity, Expedia and Cheaptickets.com give people the type of search power that was once available only to travel agents.

At the same time, Web sites such as Frommers.com provide tips for bargain hunting, message boards and an online magazine, all with useful trip-planning information.

“The question is whether we are seeing the beginning of everyday low pricing emerge as it has in the retail industry,” said David Newkirk, a travel industry consultant with Booz Allen Hamilton Inc.

The success of low-cost carriers such as JetBlue and Southwest Airlines, which have maintained profitability during the slump, supports that trend, Newkirk said.

Larger rivals such as United and American will have to learn to compete with the discounters or go out of business, he added. And if they go out of business, he said, there would be plenty of used jetliners and empty airport slots for new low-cost carriers to enter the market.

Newkirk offers the contrarian view that it might make sense for airlines and hotel companies to rely less on their complex and sophisticated “yield management” systems, which can result in each passenger in a row of airline seats having paid a different ticket price. Those computer systems were designed to create a price curve that increases with consumer demand.

“It has gone too far,” Newkirk said, “and it has so complicated the selling process that it has poisoned the customer relationship.”

Certainly, some of the major airlines are beginning to explore new fare-pricing models. And United and Delta Air Lines have announced plans to introduce their own low-cost carriers.

But O’Rourke of the TIAA believes that much of the discounting going on in the industry now is just the result of the cyclical nature of the industry.

“The problem is that there is an oversupply of hotel rooms and airplane seats,” O’Rourke said.

Business travel is off by more than 12% from a year ago, while the international market is in a dramatic tailspin sparked by the war and compounded by the pneumonia-like severe acute respiratory syndrome outbreak spreading from across the Pacific.

Eventually, though, those markets will come back, O’Rourke said, and soak up a portion of the extra airplane seats and hotel rooms going unused. She and others believe that pricing will firm up once demand better matches supply.

“Clearly, we are in an environment now where it is hard to raise prices,” said Hilton Hotels spokesman Marc Grossman.

Grossman said the stock of new hotel rooms in the United States was growing at a rate of only 1% to 2% annually and by even a smaller rate in the full-service category that includes the Hilton brand.

“If there is little new supply introduced, there will eventually be a shortage of full-service hotel rooms,” Grossman said, “and that’s when the big companies will regain pricing power.”

Although recognizing the emergence of the savvy traveler, Grossman said supply limitations and brand differentiation by the major chains would prevent the lodging industry from devolving into the value-priced or commodity business model that has developed in the airline industry -- in which passengers care less about the name of the airline they’re flying than the cost of the ticket.

Winston, the university professor, disagrees.

“Hotels at the end of the day are priced as a commodity,” Winston said.

Consumers perceive little difference between a room at a Hilton, a Marriott or a Sheraton as long as they are in the same location, Newkirk said.

“We may see some blips in demand where prices get high for flights to specific airports or for rooms in a specific city, but they are going to be regional and sporadic in nature,” Newkirk said.

In the meantime, discounts will be the rule rather than the exception, Newkirk said. And that’s what Sifford of Michigan plans to take advantage of.

“If you are always looking for information to help plan a trip,” she said, “you will find that there is travel for every pocketbook.”