The price gap between flying for pleasure or business has narrowed considerably in recent years, but now Delta Air Lines and other big carriers are looking for ways to widen it again.
Their efforts could lead to a renewed use of conditions such as weekend stayovers and advance purchase periods on low-end fares, along with higher fares for unrestricted travel and new premium service offerings.
“With the consumer flush with cash, they are willing to pay for more frills,” Delta’s president, Glen Hauenstein, told analysts and investors on a recent conference call. “Different things are important to different customers.”
Depending on how it pans out, the strategy could mean decent fares for savvy leisure fliers but fewer short-notice, midweek deals for business travelers.
Big airlines long used minimum stay or advance purchase conditions as a way to fill seats with penny-pinching leisure fliers, while charging higher — often much higher — fares to business travelers who avoided such restructions.
The rise of national discounters like Southwest and smaller carriers like Frontier and Spirit, which generally don’t impose such conditions, rendered the strategy less effective. Restrictions fell away on many routes and the price gap between flying for pleasure or business narrowed.
That’s been good news for travelers in many cases. But Atlanta-based Delta, while logging record profits, has seen a decline in unit revenue — the amount generated per seat-mile flown — for the past two years.
One reason is the flatter fare structure.
During the conference call, Hauenstein acknowledged that fares in major business markets “were down 30, 40 percent on a historical basis.”
Overall, average air fares in Atlanta reached their lowest level since 2010 in the third quarter of last year, the most recent federal data available.
That could be because companies seeking to cut costs have learned to find alternatives to high fares — by turning to discount carriers, handling meetings by phone or webcast or eschewing last-minute trips.
“When you go through heavy-duty recessions, you start looking at those $1,200 tickets and say, ‘I’m going to take less trips, or I’m going to book this ahead [and save], and behavior changes,’” said Rick Seaney, CEO of FareCompare, an airline ticket comparison site.
Fencing in business fliers
During another recent investor conference call, Hauenstein said, “This past year was a real disappointment in terms of our ability to fence in business customers.” That drove fares down even for travelers seen as the least price-sensitive, but it appears “those trends are starting to reverse out,” he added.
Hauenstein said if the economy is strong and business travelers continue to take to the skies, while airlines trim growth, “the opportunity to raise fares in that environment … is significant.”
The airline is making a new push to more carefully single out business travelers, though doing so can be tricky since competition from Southwest — Delta’s top rival in Atlanta — and other discounters remains strong. Hauenstein indicated Delta foresees more of a nudge than a leap in higher-end fares.
“The fares got to be so low for business travel by mid-year last year,” Haunestein said. “If you take one of the primary business markets in Atlanta to city X, that used to be $750 for a day trip. It got down to $119 for a day trip. Today it is sitting at $350 for a day trip. Could it go to $400? Could it go to $450?”
While Saturday night stay requirements on domestic flights have declined over the years, Seaney said, they are still fairly common on international flights, where there is less low-cost carrier competition in many markets.
Hauenstein said that in Delta’s efforts to raise unit revenue: “I do think that [advance purchases] and stay requirements will play a big role — as big a role as they ever had … because they’re very, very important for us deciding, ‘Was that travel for purpose business or was it for travel pleasure?’”
Going home to the fam
Airlines spend a lot of effort trying to separate business travelers from leisure fliers by only allowing discounted fares on itineraries that business travelers would not want, like long trips or Saturday-night stays, since they typically want to return home to their families for the weekend.
“There’s only so many times you can fly your spouse out … for a weekend in Des Moines,” said Joe Brancatelli, a business travel expert and editor of JoeSentMe.com.
But, Brancatelli said, “there’s a limit to how far they can push, because they have competitors now that don’t require a roundtrip… You can’t fence people in when Southwest and JetBlue are there with wire-cutters, saying ‘We don’t have Saturday night stays.’”
Delta is also using other strategies as well to aim discounted fares at bargain-hunters and charge higher fares to others.
For one, the airline is separating low-spending from high-spending customers through the use of “basic economy fares,” which don’t allow advance seat assignments and do not allow upgrades or changes. United and American are following Delta’s move to basic economy fares, and adding a controversial restriction on carry-on bags with those lower prices.
Delta plans to also add more levels of upscale service at higher prices, including the rollout of an international premium economy class called Premium Select and plans for business class suites starting this fall.
Prices were at a six-year low last year, creating revenue issues for airlines.
Atlanta average fares (3rd qtr.)
Source: Bureau of Transportation Statistics
Potential savings by including a Saturday-night stay
Intra-U.S.: 19 percent savings
Potential savings with advance purchase:
Intra-U.S.: 17 percent savings
Source: Airlines Reporting Corp. and Expedia study of worldwide air travel trends, December 2016