Consumers Redeeming Miles for Travel

A woman named Mary Jane Credeur wrote a really nice article for Bloomberg this week that was published in many papers (Greetings from Asbury Park). It explains that consumers are burning miles for travel more than in the past, as evidenced by growing redemption tickets. Awards become more attractive as fares have increased. Further, banks are buying and giving away miles like drunken sailers. [Ed. note - Have we learned nothing from the mortgage crisis?] IdeaWorks is cited as claiming that half of all miles earned are not from flying.

We thought it was interesting to compare the reported increases in redemptions with the carriers' published traffic statistics:


Pretty clearly the redemptions are up much more than capacity, load factor, and passengers carried. Taken as a whole, this table is a roundabout way of confirming that carriers were selling fewer tickets in the first half of the year (ARC transactions were down 3.9% in 1H08). Hence the flurry of capacity cuts announced for 2H08 and 2009.

Interestingly, it also suggests how important banks' money from buying miles is for the overall airline revenue eco-system. If consumers won't directly buy air travel; let them do it indirectly via credit card purchases! As such, we'd like to see carriers continue to invest in tools that make it easier to redeem miles. And get a little more creative about how they manage the "price" of a ticket in miles. We'd also like to see a Cubs vs. White Sox World Series...but there's only so much an airline can do.

CWT QSI on UA ASAP !

According the an article in TravelWeekly.com (which comes out daily by the way) - It looks like CWT is having a spat with United and "continues to move market share away from the carrier"

The Beat is also on it saying that UA canceled its U.S. CWT agreement in June, so CWT in turn cancelled its International agreement - and they have not come to terms on a commission structure.

As a result - "[CWT] have shifted a substantial amount of traffic away from United... We are still shifting business away from United when all else is equal. Where there are markets served by United as well as other major carriers, and scheduling and pricing is as good for our clients, we have taken business away from United in favor of primarily one of the other big four U.S. carriers."

Overall - this seems pretty crazy. We know UA is taking aim at their huge commission costs, but UA also relies very heavily on agency corporate business. CWT being the biggest out there - seems like a tough fight. In addition, IF it's true that they are successfully moving business away from UA - it seems like this will only get worse once CWT starts to broaden the reach of online Symphonie initiatives and can easily automate rules to their clients.

UA used to place a huge emphasis on the QSI metric - the "Quality of Service" that is the marker for how much any agency should be selling on any route. We wonder if they have moved away from this - or if CWT really wasn't selling much of UA to begin with...

We're Back - And We Remember

We've been pretty silent the last few months - Combination of our day job really hitting us hard, and the fact that it was a great summer weather in Chicago. If you're from Chicago - you know you have to really maximize the summers in order to slog it through the 8 months of crappy winter hits.

However, FMV had a really interesting conversation the other day that we thought we should share.

We were flying on Weds (Sept. 10th) and sat next to a older couple who kindly asked "do you fly often?" We said "all the time - what about you?". She responded - "Well, this is our first flight since 9-11 since we were pretty scared about air travel, but they seem to have it pretty under control now.."

It took us a few minutes for that to sink in - and kind of amazing that it took SEVEN YEARS before this couple decided that they should get moving again. Those of us in the airline business prolly forget about things like that.

We actually flew on 9-18, the next week after the attacks - and we can still remember how tense it was. It's a world different now, but we guess it shouldn't be taken for granted. We remember and we guess it's time for us to get moving as well.

We're back to doing posts, and hopefully some interesting stuff will hit so we don't have to work too hard during halftimes of Bears wins !!

Where Are You !!?

Sigh.

Yes - we know thatwe have been absent lately. But to tell you the truth - there is not much going on. Check that - there is - but it can all be boiled down to five math equations:

1) The price of oil is very high = Airlines in trouble;

2) Airlines are in trouble = Airlines cutting flights;

3) Airlines cutting flights = Airlines sell less tickets;

4) Airlines sell less tickets = Airlines charging fees;

5) Airlines charging fees = travellers are not happy.

That's really it. So we're not dogging it - we're just not seeing blog-worthy stuff to bore you with besides Carrier A cutting capacity, Carrier B is losing money, Carrier C now charging fees, etc. Sure, there's higher fares and bankruptcy speculation in the mix - but you can read that anywhere.

The only really interesting thing is the whole AA vs. Kayak kerfuffle - but we are putting a 3 week (subject to change without notice) blogging ban on it because we think it will be all resolved by then. Time will tell...

AA and the High Life!

FMV now has confirmed that there are some people at AA who are smart, rationale – and are willing to put some reasonable limits on the latest round of “fee-mania”.

According to the Travel Weekly (which, by the way, is updated daily):

American Airlines’ new checked baggage fee does not apply to duty-free liquor purchases in the U.S. Virgin Islands, according to Tourism Commissioner Beverly Nicholson-Doty. “It is a great relief and a show of good faith that American granted us this special waiver," Nicholson-Doty said.

Visitors to the USVI can bring home $1,600 worth of duty-free items, double that of other Caribbean destinations, including four liters of liquor (five if one liter is a product made in the U.S. Virgin Islands).

Think about that - up to $1,600 worth of booze. Welcome to the AA High Life!!



BONUS CONSUMER TIP:

Oh, wait - only 5 liters duty free allowed? That must be really good stuff! Let's run the numbers:

• USVI top shelf duty free booze purchased on AA: $1,600 for 5,000 mL is $0.32/mL.


• US Airways in-flight cocktail: $7 for 50 mL bottle is $0.14/mL or $700 for 5,000 mL.

If you're not too choosy - you're better off buying 100 mini-bottles on US and paying the $15 to check them.

US Goes Service Fee Nuclear

Bypassing GO! and collecting $200 for anything that is not nailed down, US Airways has introduced almost too many service fees and cost reduction efforts to list:

• $15 for the first bag. Well played - pioneers get the arrows, settlers get the land. AA has already taken a beating, United has already jumped on board, pretty safe move....


• New fees for certain NRSA employee guests. We get it, if you're dead weight and burning fuel, you're paying for it...


• Boosting the call-center and ATO ticketing fee to $25-$45. Get yourself on the information internet superhighway or pay a toll for the slow call center lane. Makes total sense....


• $2 for a can of soda onboard. Fine, whatever, buy it before you board...


• $7 for liquor onboard. Fine, makes sense, wha - - - WHAT?

This means it's $9 for a rum and coke? What kind of a world do we live in? US AIR - You just lost your right to sell the High Life, is what you did!! This has gone WAY too far now....

Victory for the Lowest Common Denominator

It turns out that UA has "matched" AA's $15 fee for the first checked bag. This to us was a matter of when, not if. We have to assume this charge will become the norm in the market (except for Southwest - who will really start to ramp up the PR machine on this fee now).

If so, then consumers don't really need to worry about cross-shopping confusion. The bag fee is just another necessary expense of travel, like airport parking, little tiny in-flight liquor bottles (hold the ice), and cigars at the duty-free shop...

BetaBlue: Still Free, Less Limited

There was about a 1" tall article in the WSJ this week explaining that JetBlue has expanded their Beta test of inflight Wi-Fi. WSJ subscription required, so link here instead. Here is why you can ignore this progress:

• The service is still only offered on one plane. Not a typo, one plane.


• The service now allows access to one web site, Amazon.com. Not a typo, one web site.

Here's why it's kind of interesting:

• E-mail now available via Gmail, Microsoft, and AOL


• One can conclude that the limited test to date has been successful, allowing [extremely nominal and arguably negligible] expansion of the pilot. Hopefully this means a full and worthwhile deployment may follow in our lifetimes.

We have to assume, given how much convention hotels charge for Internet access, many passengers would gladly pony up say $5/hour or $10-$20/flight (or more) for e-mail access. Corporate travel buyers may not be giddy about that prospect, but certainly Jetblue is. That aside, a nice round of applause for the PR person that padded their release count with this "news".

AA: The bag fee is no biggie

OK - this is the last AA Baggage Fee posting, we promise. But this one isn't our fault because AA is on the PR offensive and is contacting media outlets to explain "The Fee". Our headline paraphrases the situation, that this new bag fee really won't impact summer trAAvel. Per this story:

• They estimate that 25% of passengers will be affected by the $15 first bAAg fee;


• That's because (same story), 75% of summer travelers have already bought their tickets and thus won't be asked to pay the bag fee;
  
• Thus, travellers need not worry about being inconvenienced [oh, and please book on AA ASAP].

Makes perfect sense - until you start looking further:

- Back when the fee was announced, AA said that only half of their passengers check a bag. If true, then only 50% of the 25% percent (of passengers that haven't bought summer tickets yet) may pay the fee.

- Then remeber that a bunch of those pax are international and / or elite and / or bought a full price ticket - so no bag fee applies.

- Now figure that less people will be willing to check a bag because they now have to pay $15.

Now we're figuring maybe 5-10% of summer travellers on AA will pay this first bag fee? Hmmm..

At $15 a bAAg, that's still a lot of money. But AA is certainly getting a TON of bad publicity for this and they don't seem to know how to make a bad story go away. FMV's advice - just zip it already! Don't keep trying to explain it, don't keep trying to justify it, and for goodness sakes - DON'T try to tell your customers that it's actually a "bargain" !!

"The airline defended the fee, saying it was a bargain compared with the cost of shipping a 45-pound bag overnight on a package-delivery company. A spokesman for the airline said the cost of sending a bag from Dallas to New York would range from $150 to $230 or more."

FMV is also thinking of making this a paid site for our new customers for $10 a month. We figure it's a huge bargain compared to paying for online newspapers, CNN.com, espn.com and others! oh wait, those are free too....

Southwest = Complete Clarity

Once again, we have to hand it to Southwest. With the US majors struggling to boost revenue and cut costs, not a day goes by without a carrier looking like an anti-consumer enemy of the state in the news. Yet Southwest emerges with their value proposition as clear as ever: Basic air transportation at a decent price with no nickel-diming.

They drove it home with a full page ad in today's WSJ (and likely elsewhere) featuring a coupon (redeemable only on Southwest) reading "DON'T #$*!% ME OVER". The coupon is followed by a list of the various fees Southwest does not impose. The message is simple, and brilliant, and it will resonate not only with Johnny Lunchbucket trying to enjoy some R&R, but also with the coveted business crowd.

They also unveil a new tagline, "Fees Don't Fly With Us". Of course, neither do we (three letters for you, MDW). However, we can understand why people do. And we suspect many more will. Pass the peanuts.