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The stun-free ‘walk-up’ ticket

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Times Staff Writer

People who fly on business at the last minute have a lot less to gripe about.

For years, they’ve complained about high fares for unrestricted “walk-up” tickets -- the seats often bought by business travelers -- that could cost $2,000 or more for a round trip. They’ve also rebelled by fleeing to discount airlines or making fewer trips.

But they finally got a break in January when Delta Air Lines slashed its unrestricted fares as much as 50% on domestic flights and capped its one-way coach fares at $499. Several other major carriers, including industry leader American Airlines, largely matched the cuts on routes where it competes with Delta, the nation’s third-largest carrier.

“This is huge,” said Bob Harrell, president of Harrell Associates, a New York consulting firm that tracks fare trends. “It is a structural change.”

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There was more. Delta and the others also slashed their fees for changing tickets and scrapped the Saturday-night-stay requirement that often was needed to get a cheaper fare. It too was the bane of business travelers trying to save money but still get home before the weekend.

Moreover, the price-cutting spread well beyond Delta’s routes. Harrell’s analysis of 280 routes in the top 40 U.S. markets showed that average business fares on those routes, as of Jan. 31, had dropped by nearly one-third from a year ago.

The average one-way unrestricted fare for seven of the largest carriers -- American, United, Delta, Northwest, Continental, US Airways and America West -- fell to $412 from $607 a year ago, Harrell said. To cite just one example: Northwest’s unrestricted fare from Los Angeles to Detroit dropped to $449 from $983 a year ago, he said.

“Our members have been screaming for this for a long time,” said Carol A. Devine, president and chief executive of the National Business Travel Assn., a trade group in Alexandria, Va.

And perhaps most important, it appears this change will stick, unlike other fare promotions that quickly come and go, industry observers said.

“I think this one has staying power,” said industry consultant Terry Trippler in Minneapolis. Why? Delta and other big carriers are under intense pressure to keep business fares down if they hope to ward off the growing numbers of discount airlines such as Southwest, JetBlue and AirTran, he said.

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Business fliers and corporate-travel departments now see that “they can book at the last minute and know that it’s only going to be $499 max,” Trippler said.

Road warriors such as Michael Wilbert in Atlanta, Delta’s home base, couldn’t be happier. Wilbert, an assistant vice president of sales for an insurance company, said his desire for direct flights and his firm’s desire for cheaper travel often clashed when fares were higher.

Flying Delta from Atlanta to Cincinnati, for example, “was $750, no matter when you booked it,” he said. But its flight from Atlanta to Dayton, Ohio, cost only $236 because discount carrier AirTran also flies the route. So Wilbert would fly Delta to Dayton, and rent a car to travel 90 minutes to Cincinnati.

“It used to drive me crazy,” he said. Now he can fly to Cincinnati and other cities for no more than $499. “For me, it’s been a real positive,” he said.

Business fliers such as Wilbert “had grown weary of all the hoops they had to jump through in order to get a fare that their travel manager would approve,” said Scott Nason, vice president of revenue management at American. Its customers, he said, “are thrilled that some of those things aren’t required anymore.”

Immediate savings -- for some

To be sure, there are still routes where a one-way trip can cost more than $499 or even more than $1,000 for flights booked at the last minute. Case in point: Harrell found a United Denver-to-Boston flight that still cost $1,059.

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But of the 280 routes he measured, only 36 -- or about 13% -- had prices of more than $499. That means 87% of the system he measured offered unrestricted fares of $499 or less. “This is very wide coverage,” he said.

Even so, the fare-cutting does not mean universal benefits for U.S. businesses and corporate travel departments. The impact seems to depend on the type of business traveler you ask.

Workers who mostly book their own travel, which means many employees of small and mid-size businesses, are enjoying immediate savings.

But large corporate accounts that had prearranged contracts with the airlines -- in which they earned discounts from posted fares in exchange for driving business to that carrier -- are still crunching the numbers and negotiating with the airlines to make sure they’re not losing ground.

Charles Franklin, the travel manager for American Honda Motor Co., the Japanese automaker’s U.S. division in Torrance, oversees travel for about 5,500 employees under a contract with Delta. When Delta announced its new “Simplifares,” Franklin sharpened his pencil: Would his company save more or less under the new fare structure compared with its existing contract?

It appears “we’ll initially have savings, but it’s a bit early to tell,” Franklin said. “It’s going to take a couple of months to see real data.”

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That’s not all. With fares dropping industrywide, what if another airline matches or undercuts Delta’s new prices on the same route? “It could be a challenge for me to keep those people on Delta,” Franklin said.

The NBTA’s Devine, noting that business travelers still face one-way fares well above $499 on certain routes, said the airlines still need to further simplify how many categories of fares they charge.

The price-cutting by Delta and the others “is a step in the right direction, and reducing the variance between the leisure and corporate tickets is a good effort,” she said. “But further simplification of the fare structure is still in order.”

The airlines long contended that the premiums they charged for walk-up fares were justified in exchange for holding seats for last-minute business travelers.

But business fliers, under pressure to tighten their spending, argued that the gap was too wide. They asserted that business travel was, in effect, subsidizing the cheaper fares for leisure travelers. Many fliers took their business elsewhere.

That’s helped the discount airlines grab more than 25% of the nation’s passenger traffic, analysts estimate. In turn, the loss of many business passengers -- and the fat profit margins from their fares -- has exacerbated the financial crisis among the so-called legacy carriers such as American, United and Delta.

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The airline industry has lost more than $30 billion since the 2001 terrorist attacks. United and US Airways are in bankruptcy proceedings, and Delta, too, remains perilously close to bankruptcy.

Delta cut its fares because it decided the old system simply no longer worked and that the migration of business fliers to discount airlines wasn’t temporary. “What we did was simply accept the reality of the marketplace,” said Harlan Bennett, vice president of revenue management at Delta.

Some have called Delta’s action the most dramatic fare restructuring since 1992, when American stunned the industry by lowering and simplifying its fares. But then other airlines undercut American’s new prices and sparked a fare war, and American’s plan was quietly shelved later that year.

‘Our traffic is up’

That’s not likely to happen this time, because the big airlines are in no financial condition to price business fares much below Delta’s new levels, analysts said. Also, American’s plan in 1992 was partly aimed at stimulating travel during a recession. The economy is growing today, and passenger traffic is near record highs.

At first glance, it might seem financially damaging for an airline to slash fares. But Delta, for one, hopes that the lower prices will prompt more businesspeople to fly.

It also hopes more business travelers will forgo buying a cheaper restricted leisure fare and instead buy a business fare that gives the traveler more flexibility and gives the airline more cash than a leisure ticket.

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Both Delta and American said early indications suggested that passengers were doing just that. “Our traffic is up,” said American’s Nason. “I think it’s only reasonable to attribute most of that upside surprise to the fare restructuring.”

Nason said American matched many of Delta’s lower fares to stay competitive and avoid losing market share, not because it expected to make more money. In fact, the reduced income from the fare-cutting isn’t likely to be offset by the higher passenger loads, he said.

“We expect this to be revenue negative,” he said. “But we are better off than having done nothing” and watch business fliers migrate to Delta and other carriers, Nason added.

Indeed, American and the other big airlines had little choice if they hoped to get more businesspeople on their planes, analysts said. Few companies today, or individual businesspeople, are willing to pay a one-way fare of $1,000 or more without hesitation. And the discount airlines are happy to make them an alternative offer.

Said Harrell: “Someone was going to come to the realization -- in this case it happened to be Delta first -- that something had to give.”

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(BEGIN TEXT OF INFOBOX)

How fares have dropped

Business fares have fallen sharply from a year ago, in large part because Delta Air Lines and other carriers recently slashed a wide swath of business coach prices. The chart below compares current average one-way fares with those from last year:

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*--* Airline Jan. 2004* Jan. 2005* % Change American $858 $481 - 44% Continental 663 453 - 32 Delta 524 358 - 32 Northwest 655 473 - 28 United 702 470 - 33 US Airways 506 313 - 38 America West 342 333 - 3

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*--* Average 607 412 - 32

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*Based on unrestricted coach fares generally used by business travelers on 280 routes in 40 major U.S. markets. Excludes security fees and other taxes.

Walk-up fares

Here are some examples of how walk-up fares have dropped compared with a year ago:

*--* Route Airline Jan. 2004 Jan. 2005 L.A./Detroit Northwest $983 $449 L.A./Atlanta Delta 755 449 San Francisco/N.Y. United 599 499 San Francisco/Dallas American 707 499

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Source: Harrell Associates

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