The US Government has just negotiated new fares with 14 of the US airlines for 2003.  The tickets are unrestricted, and average 72% LESS than comparable business fares offered to the general public.  Yes - if you buy a full fare ticket for $500, the government is buying the same ticket for $140.  I've seen corporate discounts for companies that buy millions of dollars of travel a year go as high as 40%, but I've never seen 72% in regular commercial contracts.

Would someone explain to me, then, why it is that the airlines are complaining at not making money and needing to charge more, when they discount their tickets a stunning 72% to the government?  If it makes commercial sense to transport government employees on tickets with no restrictions, no advance purchase, no penalties, no Saturday night stay, at these rock-bottom discounted rates, why can't the airlines offer the same rates to other travelers?

The airlines have been desperately trying to spin the story about why business travelers are now refusing to pay 'business' fares every which way, but the secretive government discounts illustrate the underlying ugly reality the airlines wish we didn't know.  Their so-called 'business fares' have no credibility.  The truth is out.  Only fools pay full business fares.

The airlines are puzzled about what happened.  They offer various analyses and are trying to implement various responses. But they are still getting it all wrong.  For proof of this, let's look at a quote from former American Airlines CEO Bob Crandall.  On  'Meet the Press' last Sunday he said

The public has been offered a choice, in effect, between quite high levels of convenience and service on the one hand and very low prices on the other.

This analysis is dead wrong!  The airlines have not offered 'quite high levels of convenience' to any of their travelers for many years!!!

Why are the traditional carriers spinning in a death spiral down into bankruptcy at present?  The reasons are actually stunningly obvious and simple.  They did (and still are doing) five things wrong :

• They increased the spread between discounted fares and full/business fares.  Only a few years ago the spread from highest to lowest fare was a factor of three, but when the airline industry collapsed, the spread had widened to six to one.  At the same time, discount carriers have been narrowing the spreads between their highest and lowest fares.
• Secondly, while increasing the cost of unrestricted fares, they reduced the benefits associated with these fares, making the so-called 'no frills' airlines more and more attractive on a service (as well as cost) basis.
• Thirdly, they pretended that the new low cost carriers such as Southwest were not 'real competitors'.  Rather than learn from and respond to these airlines, they ignored them and what they implied about their customers' real needs.
• Fourthly, they have allowed the hassle factors and time costs of air travel to make it cheaper, more pleasant and quicker to travel larger and larger distances by car not plane.  The airlines estimate that security hassles will cost them $2 billion in lost revenue in 2002, but are spending none of their own money to help improve these problems - how stupid is that?
• Lastly (and it might well be the last thing that some of them do as they go into potentially terminal bankruptcy) they insist that the only cure to their problems is to cut back on services and to increase fares, well beyond the point that anyone will pay for.  Their competitors - the lower cost airlines that are stealing massive market share - are succeeding by doing exactly the opposite - increasing the quality of their service while reducing their fares!

Now for a lesson in the real world - the place that airline executives never seem to inhabit.  These days the service on Southwest is generally better than the service on a so-called 'full service' airline.  By taking away every possible perk of 'full service', and while allowing (or, it seems, encouraging) surly service and an anti-customer attitude to pervade every level of their organizations, the big airlines have nothing left in their favor (except frequent flier programs, and read more below about how they're trying to kill that golden goose, too) while the discount airlines are looking better and better.

Anyone who has ever experienced Jet Blue's planes, cabin crew, and ground staff will tell you for as long as you care to listen how amazing this carrier is.  Better planes, better seats, better service, better fares - better everything.  You'd be nuts to fly any other carrier if Jet Blue has a comparable schedule and fare.

And so how do the major carriers respond to this?  Do they say 'we need to urgently respond to this new high service/low cost marketplace paradigm'?  No!  Instead they say 'we're going to cut back on our service even more.  We're going to operate fewer flights and longer connections.  We're going to increase our fares, and we'll make flying with us even more miserable than it already is.'  And so, you, the abused traveling public - but blessed with a ton more sense than a roomful of airline executives - do the obvious thing.  You cut back on your flying.  You refuse to pay ridiculous fares with no associated benefits.  You switch to decent airlines with decent fares and decent service.

Here's an example of the difference in approach.  This week Spirit Airlines announced it was increasing and improving its First Class service.  At the same time, Continental said that it is cutting out more customer service items - for example, there will be no more plastic knives served with breakfast trays in coach class. This will save the airline potentially $85,000 a year.  Continental had gross income of $8.15 BILLION dollars in the last twelve months - can you believe that they are obsessing over an item that is one thousandth of one percent of its income?  Is this the most important vital step they can take to return to profitability?  Is there nothing more valuable or important that they can focus their oh so highly paid management attention on (CEO Gordon Bethune's weekly earnings, in 2001, were almost exactly equal to this new savings)?  Well, yes, unfortunately there is.  No longer will you automatically get an entire can of soda if you ask for a drink!  You'll only get a small glass of soda (more available on request - if you're lucky).

And while traditional airlines are desperately seeking to increase fares, adding on surcharges, and cutting back on 'waivers and favors' to preferred fliers and travel agencies, guess what Southwest did on Thursday?  Southwest reduced their last minute one way fares, across the board.  Effective immediately, their most expensive fare is no more than $299 each way (down from a previous maximum of $399).  Senior VP of Marketing, Joyce Rogge, said 'we're saying that if you pay more than $300 each way, you're paying too much.'

And, showing that some airline executives do still live on Planet Earth, she added  'You shouldn't have to charge higher fares to your customers in order to offer them the level of service they deserve every day.  We consider "service" to be a great selection of frequent flights to 59 destinations, an ontime arrival, low everyday fares, an extremely lucrative frequent flyer program, the convenience of online booking, and Customer Service delivered with warmth and a smile. You shouldn't have to pay an arm and a leg for that.'  (By the way, consistently profitable Southwest can still afford to pay travel agent commissions, too!)

If Joyce Rogge ever wants to run for President of the United States, under any party banner, she's sure getting my vote!  Maybe she'd be a good CEO choice for United Airlines?

Meanwhile, the 'major' airlines are continuing to nickel and dime their customers and their travel partners any which way they can, while not realizing that the penny they save is losing them a dollar in revenue.  For example, most of the majors have now started charging if you try to check a third piece of baggage.  Formerly it was common that you could check two bags and take one carryon with you, or check three bags and have no carryon.  Now a third piece of checked luggage will cost you $40 or more each way (and, of course, with draconian airline security, more people are having to check rather than carry on items).

The airlines are trying to charge even more and more for paper tickets.  Most airlines now charge you $20, and they are now trying to up that charge to $25.  There is no way that this is an honest cost recovery on the part of the airline - honest cost recovery for what should be a totally automated task would suggest a fee of maybe $1 or at the most $2 (how much does it cost a theatre to print a ticket to a show?).  And, to add further insult to travel agents, Continental will charge $20 if a travel agent issues you a paper ticket (this was formerly a no cost item allowed by all the airlines).  Continental claims that this fee is to recover their costs of the travel agent issuing the ticket (and what costs exactly would those be, I wonder!!!) and what makes this charge absolutely ridiculous is Continental requires the travel agent to write out a laborious and usually manual charge form (that will be costly for the airline to process) to record the fee paid each time.

I have never seen an industry, anywhere else in the world (not even in the crazy wilderness of Russia seven years ago) where a service provider is so aggressively at war with its customers.  I could continue, but I think the lesson of this editorial is already clear :  Traditional airlines don't just dislike travel agents and customers - they seem to actively hate them, and seem to be hell bent on making our lives a misery.