Rising fares burn biz fliers

CHICAGO -- Janet Leonard, an executive secretary at San Diego phone-equipment maker Remec, got a jolt when she bought the company's chief engineer an American Airlines ticket to a Toronto factory last month.

The $1,742 round-trip coach fare could have almost paid her mortgage for the next two months. "I had to pick myself off the floor when the travel agent faxed it over," Leonard said.

Leonard is no more astonished than other people coughing up for business travel these days. Even as the United States enjoys its lowest inflation rate in 12 years and jet fuel prices -- airlines' second-biggest cost after labor -- have plunged, U.S. airlines continue to raise business fares. That's been great for airline profits, which have set records for three straight years, but it has business travelers seething. "As far as I'm concerned they're taking advantage of our need to do business," said Bill Rimel, president and chief executive of American Inks and Coatings in Valley Forge, Pa. "It's outrageous." Last year, the average price of a coach class ticket with no restrictions -- the kind most often purchased by business fliers -- rose about 7 percent, according to American Express Travel Services, the largest U.S. corporate travel services company. That followed a 16 percent jump in 1997 and brought the total increase over three years to about 34 percent -- or to an average last October of $459 for a one-way ticket on 215 heavily traveled U.S. business routes, the American Express unit says. That's the highest level since the company began tracking business fares in 1992. The U.S. Consumer Price Index has risen 7 percent in the same period. Some business travelers thought the worst was over in 1997, when airline prices drew increased scrutiny from the Justice Department and Congress. Yet fares not only kept rising last year, but probably will rise further this year, some analysts say, as airlines try to offset rising labor costs and slower demand for travel. American Express Travel's 1999 forecast at the end of the month will likely forecast a 3 percent to 6 percent increase, said Melissa Abernathy, a company spokeswoman. In many industries, slack demand would curb price increases. But business travelers, who often have to get somewhere fast on short notice, say they are at the mercy of the airlines. "They know that if you absolutely have to be in Denver tomorrow for a business meeting, you're pretty much going to have to fly there," said James Ashurst, spokesman for the American Society of Travel Agents. Leisure travelers, more able to take advantage of advance-purchase discounts, saw little if any increase in fares last year. The Air Transport Association, the airlines' trade group, says average one- way ticket prices overall, including leisure fares, rose just $1.30, or 0.9 percent, to $138.87 through November. Airlines say the price disparity is justified. "There are reasons for (business) fares to be high," said Tony Molinaro, a spokesman for UAL's United Airlines. "There is a cost to saving seats for the last minute for business travelers. They are paying for the (airlines') risk that the seats may fly empty." Business travelers account for more than half of airlines' revenue, with most of it coming from a core of so-called road warriors. Members of United's premier mileage club, for example, constitute 11 percent of the airline's travelers but 44 percent of the revenue. Airline profits also have been boosted by big reductions in the price of jet fuel, which accounts for about 10 percent of an airline's costs. Airlines paid an average of 54 cents a gallon for jet fuel this year, down 14 percent from 63 cents in 1997, according to the ATA. The airlines got a boost in the fourth quarter in particular, when jet fuel hit as low as 30 cents a gallon, the lowest price since the 1970s. Business travelers say the airlines haven't passed along the savings. "Airlines have used increased fuel prices many times to justify raising fares," said Terry Trippler, president of a Minneapolis travel company and publisher of the Airfare Report. "I have never seen them lower fares when fuel prices dropped." Last year's $2 billion in fuel savings for airlines was eaten up by higher pay for pilots and other airline workers, said Dave Swierenga, the trade group's chief economist. The industry's labor costs rose $2.1 billion, or 5.8 percent, in 1998 to $38.6 billion, he said. They probably will rise further in the next two years as more contracts with pilots, machinists and flight attendants come up for renegotiation. Meanwhile, the industry's pricing practices are under the microscope. The Department of Transportation is considering guidelines that would impose a fine of up to $1,100 a day on airlines that try to drive a start-up out of a market by adding extra seats and lowering fares, as some carriers have been charged with doing. Airlines vigorously oppose the guidelines and so far have been able to delay their implementation. In addition, the Justice Department is investigating the four biggest U.S. airlines -- United, AMR's American Airlines, Delta Air Lines and Northwest Airlines -- for predatory pricing. The airlines deny any wrongdoing. Some business travelers aren't waiting for government help. Among other things, they're switching from full-fare unrestricted tickets to cheaper advance-purchase and non-refundable fares. The first substantial evidence of the switch showed up in October, when the industry recorded lower-than-expected October revenue even as traffic volume rose. Recently released November traffic data showed ticket prices holding steady, but no growth in the number of full-fare and first- class travelers, said Glenn Engel, a Goldman Sachs analyst. The result is that airlines' fourth quarter revenue probably didn't grow as businesses either bought more discount fares or cut back on trips, he said. "I think the airlines are finally getting a wake-up call," said Pete Buchheit, director of Black & Decker's travel and meeting services.

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