SEAT 2B | By Joe Brancatelli
Two Years of 2B
A look back at the biggest business-travel stories of the last two years, from the sharp drop-off in premium-class travelers to the ever-rising fees banks are imposing.
Tuesday, April 14, 2009; 12:00 AM
This is the start of the third year that I metaphorically plop down in Seat 2B once a week and attempt to make sense of life for business travelers. And since no one deserves a free ride in a power chair, even if that chair is an airline seat, I think now is a good time to try to make sense of what has gone before.
But be warned: There are no overarching trends here. As is so often the case on the road, these last two years have been almost totally reactive: to insane swings in the price of fuel to the apparently endless cycle of boom-and-bust that dominates hotel development, and, of course, to the economic wave that has carried us from the relatively giddy times of April 2007 to our current -- uh, well -- to whatever it is we're living and working through.
Southwest's Steady Course
Even the nation's one financially sound U.S. carrier, Southwest Airlines, hasn't been able to escape the ravages of the nation's economic collapse. Its traffic is down about in line with industry-wide trends and it has taken the unprecedented step of trimming its overall capacity by 4 percent this year. And the airline's vaunted fuel-hedging strategy, which saved the carrier about $3.5 billion in the last decade, cost it money in the second half of 2008 as oil prices collapsed. But some things never change: Southwest is using the downturn to position itself as an alternative to the nation's mainline carriers. After decades of shunning some of the largest U.S. cities, it launched flights to Minneapolis last month, is scheduled to begin its first-ever flights into New York (via LaGuardia Airport) in June, and will serve Boston's Logan Airport in the fall.
United's Inexorable Decline
It's gone from worst to even worse than that at United Airlines, the most troubled of the nation's so-called "legacy" carriers. Once the nation's largest airline, United is hemorrhaging after a bungled mega-bankruptcy and years of management missteps. About 40 percent of what flies as United Airlines is subcontracted to regional airlines and much of the remaining service is actually code-share operations with its international partners in the Star Alliance. Every one of its union contracts becomes "amendable" next year (airline contracts never technically expire). Compared with the other legacy carriers, its cash reserves are small and there are few unencumbered assets to hock. And early next year, it will have to discuss cash-draining "holdbacks" with JP Morgan Chase, its credit-card processor. Operationally, there's no good news, either, since its once-profitable service to the Pacific Rim is deteriorating rapidly due to plunging yields to Asia and fresh competition on its Australia routes.
Fate of the Fourth Class
The worldwide collapse of premium-class traffic since last fall has had the expected effect: Airlines have stepped up their discounting in business class and more carriers are adding a fourth class, which is rather generically known as "premium economy." The discounting trend is both structurally strategic-the airlines now offer a range of discounts from three to 60 days before departure-and tantalizingly tactical, with sale fares slashing as much as 75 percent off the price of international business class. As for premium economy, Air France added the new cabin on three premier routes (from Paris to New York, Tokyo, and Osaka). But the fate of fourth class is far from secure. Even as Air France was debuting, OpenSkies, British Airways' boutique carrier, was renaming its fourth cabin as the "biz seat." The reason? Premium economy still exists in a computer-coded limbo, which makes selling it via the airline industry's omnipresent global reservation services difficult.
The Banking Blues and London Rediscovered
If I've been at all prescient in the last two years, it was the Run on the Bankers column that posted shortly after Lehman Brothers tanked last September. Exactly in line with the meltdown of the markets, bankers stopped flying, and that has caused the calamitous decline in premium-class airline revenue. It's been especially tough on British Airways, which is disproportionately dependent on premium flying on the NyLon (New York-London) route. And there's no doubt that BA (and London) are still suffering a year on from the disastrous opening weeks of Terminal 5 at Heathrow Airport in March 2008. The good news for those of us who love London? The British capital is cheap again for upscale American visitors, thanks to massive airfare and hotel discounts and the precipitous decline of the value of the British pound.
Just before the world's economies shuddered, the U.S. dollar was at an unconscionable, unaffordable low ebb. But for reasons known only to the masters of the universe, the U.S. dollar has gained strength against almost all of the world's currencies as the American economy weakened. If you've got any discretionary income left, this will be a great summer to travel virtually anywhere in the world. The dollar is buying 20 to 50 percent more than last spring and summer. The only exception: Japan, where the dollar continues to languish at or below the 100-yen mark.
A Fee By Any Other Name
Still, it isn't all bread and dollar-denominated chocolates overseas. Banks and other financial institutions continue to raise the fees they charge when you use your ATM or credit card outside of the United States. The latest trick: Currency-exchange fees of 3 percent or more even if you use your own bank's ATM card to make a withdrawal from your own account at an overseas ATM owned and operated by said bank. Even financial institutions that continue to advertise fee-free ATM usage are adopting the currency gambit. One example: Charles Schwab Bank, whose print ads promise in big, bold type that there are "No ATM fees-we rebate all ATM fees from any ATM. Period." But as Schwab's fine print makes clear, "ATM free rebates do not include currency exchange fees or other fees." Some of the few truly fee-free ports in the storm are the credit cards and ATM cards issued by Capital One.
The Fine Print . . .
Allow me to end this column where I began in April 2007: I still believe the single best investment you can make in your on-the-road comfort and productivity is Priority Pass, the worldwide airport-lounge access program. The fees haven't changed, but the lounge network has grown by 20 percent, to more than 600 clubs in 300 cities.
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To contact Joe, visit his Contributor's page on Portfolio.com.