June 26, 2008 - A United Airlines decision to apply minimum-stay restrictions on "almost all" domestic economy tickets represents one of the more aggressive attempts by an airline to bring passenger segmentation back to pricing. Traditionally used to prod passengers to purchase higher fares, minimum stays (and Saturday-night stay rules), in many instances, force business travelers or travel managers to decide between more expensive airline tickets and longer stays that generate higher lodging, car rental and meal costs. In today's challenging economic environment, depending on how essential the trip is, the choice may be to not go at all.
United's policy takes effect Oct. 6. "The lower the fare goes, the minimum-night stay requirement increases. The higher the fare, the requirement decreases," according to an email from a United official. "The market, the fare and the length of flight" would determine if a one- , two- , three- or weekend-night minimum stay would be required.
Major airlines last year began reintroducing such segmentation tactics (primarily on some less-competitive, secondary routes) after the industry for a few years largely had abandoned them. For example,
American, Continental, Delta and Northwest airlines use minimum-stay rules as part of their pricing and revenue management strategies, including for some routes to and from hubs, but representatives for each told
Management.travel that no full matching of United's move had occurred. AirTran, Frontier, JetBlue, Southwest and US Airways do not restrict tickets with minimum stays.
Described by the United official as "one of several changes we are making to combat record-high fuel prices," the wholesale return to minimum stays for lower fares is not out of character for the airline. Since last year, United has been at the vanguard of an industry movement to generate more revenue by raising fares, adding more service fees,
tightening corporate agreements and cutting travel agency incentives. But the scope of its new pricing policy is remarkable in that it affects "most United fares, including low-cost carrier market fares." Typically, major network carriers tread carefully when raising fares or making similar moves in markets in which AirTran, JetBlue and Southwest compete, often excluding those markets from pricing actions.
"This comes at a seriously bad time for most companies already looking to cut travel expenses," according to a travel buyer at a multinational company who requested anonymity. "I can't see this being beneficial for United or business travelers and think it will have the opposite of their intended effect; it will put more scrutiny on travel and will require more trips to be canceled."
Speaking during a Chicago (formerly Midwest) Business Travel Association event this week,
PlaneBusiness.com editor Holly Hegeman, described United's move as "stupid." Asked whether she thought others would follow, Hegeman said, "It's going to depend on how desperate everybody else is. If other legacy carriers go to it, it just opens the door wider to JetBlue, Southwest, AirTran and anybody else who won't follow. I think it's going to put them at a disadvantage."
One Chicago-based travel manager, who raised the topic during Hegeman's presentation, said "we won't fly" on United.
"What are they thinking?" asked FareCompare CEO Rick Seaney in a post on his Web site. "Business travelers will be especially hard hit by this latest United policy change. I'm talking about the road warriors who want to get in and out of a destination; you know, do their job then head for home. Well, they can still do that--if they pay a premium."
At American, a representative said the airline matches fares and fare rules applied by competitors in their hubs "to be equivalent," and also uses minimum- or Saturday-night stay rules "in a couple of markets out of Dallas Fort Worth," but has not followed United's across-the-board decision. Northwest Airlines uses minimum-stay rules "on many of our fares, which improves passenger revenue," according to an official. "We apply them where possible, given competitive constraints." Continental "has stay requirements in many markets," according to an official, but has not made any recent changes. Continental last fall began applying Saturday-stay and three-day stay restrictions and by January had them in about 160 markets, primarily nonstop routes from hubs. Similarly, when Delta was asked if it is matching United's policy, a representative said, "No changes." A US Airways official said the airline is monitoring the situation but has "no plans to match at this time."
The United representative said the airline "filed the changes with the Airline Tariff Publishing Co.," which serves as the clearinghouse for most published fares offered by U.S. carriers. But with an effective date of Oct. 6, United could retreat from its new domestic economy ticketing policy if no other carriers follow its lead, or it could wait it out. [American on May 21 announced it would charge many customers $15 to check a first piece of baggage, a move that wasn't matched by another carrier until United did so on June 12. In contrast, published airfare hikes generally are matched by competitors or withdrawn within a week.]
United also raised its lowest fares on average by $25 each way, effective Oct. 6. The range of the fare hike is between $1 and $99, depending on flight distance.
A FareCompare analysis of the cheapest United fares between the top 50 cities by passenger traffic "clearly shows that the price spikes up on Oct. 6, but, even worse, the cheapest airfares spike even higher for departures in the first two weeks of November and thereafter, not so oddly enough, corresponding to Southwest Airlines which is not taking bookings for departures after October 30--yet," according to Seaney. "I bet you can guess what will happen to the average price in early November when Southwest starts taking bookings."
