JetBlue takes the gloves off with $29 fares…but will it matter?

Following up on last week’s Virgin America post and LinkedIn discussions, it still remains to be seen whether Virgin is trying to compete primarily with United, Southwest, JetBlue, or all three.  Regardless, with the new JetBlue summer sale that just launched today, it’s clear that JetBlue is feeling the pinch on intra-California flights, and has responded with fares between it’s SoCal hub in Long Beach and all three Bay Area airports for just $29 + tax.

As is the standard gimmick with most airline fare sales, there’s always a catch.  These ultra-low fares are only available on Tuesdays & Wednesdays, however fares on other dates start at just $49 each way.  They’re also valid throughout the summer, specifically 6/2-9/9, when fares are typically highest.

I’m sure that other airlines will follow suit soon enough.  Currently the best RT fares on other NorCal-SoCal routes go for about $117 w/tax.  JetBlue’s sale fares price out to just $79 RT total, so they pass the smell test as far as value goes.

The bigger question is whether this will help JetBlue recover any of its lost market share on the world’s busiest air corridor.  After shaking up the system by establishing an Low Cost Carrier with a hub in JFK (which was considered too congested and expensive for an LCC to even fly to, let alone use as its primary hub), JetBlue set up similar regional hubs at East Coast airports that Southwest had avoided, such as Boston (Logan) in favor of Manchester or Providence, and Dulles in favor of BWI.

Most industry insiders and local alike will tell you that it worked great.  Depending on what suburb you lived in, many people were willing to drive the extra 20-30 miles to those other airports for Southwest’s fares, and in many cases those other airports are even closer than Logan is.  At the very least they’re less crowded.

However, those airports lack appeal to city-dwellers who live in the some of the country’s biggest and most affluent urban areas.  Whatever fare savings exist out of Manchester or Islip instead of Logan or JFK are far more than offset by the opportunity cost of having to head out to what many Bostonians or New Yorkers would consider to be the boonies.

That’s why JetBlue completely surprised everyone even more when they took basically the complete opposite approach on the West Coast, establishing hubs in Oakland instead of SFO, and Long Beach instead of LAX.

Long Beach had some potential logic to it, as it was the one SoCal airport where they could easily draw market share away from Southwest and United, primarily because it had been a fairly limited market.  As the dominant player at nearby John Wayne (SNA), Southwest had proven that Orange County was a lucrative market, and Long Beach was arguably untapped potential.

Results out of SoCal proved to be mixed.  JetBlue was able to establish some limited success on transcon routes, where they generally had no nonstop competition out of Long Beach, although LGB never proved to be an attractive LAX alternative in the minds of locals that the carrier had hoped for.

The airline fared slightly better out of NorCal, first with flights exclusively out of OAK, then SJC, then finally SFO.  At one point JetBlue actually offerred more nonstop flights from the Bay Area to New York than any other airline – even United.

Even stubborn San Francisco city-dwellers like me were more than happy to head acorss the Bay to OAK take advantage of JetBlue’s cheap fares, but perhaps even more importantly, their superior inflight entertainment, specifically DirecTV.  A lifelong Red Sox fan, I’m proud to say that I watched Jason Varitek’s classic smackdown of A-Rod in 2004 flying back from Boston on JetBlue.  Editor’s note: Most die-hard Sox fans will tell you that it was at that very moment, not in that following magical postseason, when The Curse was actually broken.

For airlines, there’s one major problem with transcon flights – they’re not necessarily profitable.  JetBlue was offering fares from $129-$159 each way on those flights when they launched.  The legacy carriers don’t make their money on those types of fares, they make it on premium business and first class passengers, or by using them as feeders to onward connecting flights to Europe.  Since JetBlue has neither business first/class, nor flights to Europe, those options were out.  As fuel prices began to rise a couple years back, so did fares, often costing at least $249 each way for transcon flights on JetBlue.  I remember a few other colleagues in the airline industry even question if they were still an LCC.

Combine that with bad ice storm PR, and JetBlue began to lose appeal.  And if anything competing on price on trancon routes is a race to the bottom, which by definition is a race that isn’t worth winning.  JetBlue slowly began cutting back transcon service, eliminating such routes as SFO-BOS where other pseudo-LCC’s such as Song and even America West had briefly tried out nonstop service before realizing that it could never be profitable.

And as far as intra-California flights went, what was the point?  People might have been willing to spend more time locally to get to a less ideal airport on a long-haul flight, but for short-haul there were already too many other options.  United was still the preferred airline for those loyal to legacy carriers.  Southwest offered the most flights, as well as a substantial hub at LAX, making it an attractive choice for both leisure and thrifty business travelers.

Enter Virgin America.

The well-funded startup entered the market in late 2007 by offering JetBlue had been offering (low fares, superior inflight entertainment, lack of snob factor faced when flying United but not being a 1K Premier Exec), and more.  Specifically, it began with SFO-LAX flights, which proved to be a far more popular option than OAK-LGB ever was on JetBlue.  And Southwest, which had previously avoided SFO due to congestion, quick entered the market competing on such routes as LAX, SAN, LAS, PHX, etc.

I remember seeing the ad campaigns for JetBlue’s OAK-LGB service when it began.  To fly transcon out of those airports to save money and enjoy some live ESPN on a 5-6 hour flight made sense, but who possibly needs to fly between those two cities?  As major shipping ports, I’m sure that there are some people in the logistics and supply chain field who might…but that’s about it.  Even among JetBlue supporters in California, the typical reaction to the announcement of that flight was, “So what?”

Virgin America knocked JetBlue completely out of the picture on that corridor.  By flying between the two major airports, they were going directly after United.  When they surprised everyone with their new SFO-SNA flights, they showed that they were also going directly after Southwest at one of its niche hubs (not to mention a fairly affluent region).  Prior to that they made a significant dent in JetBlue’s transcon market share by establishing routes from SFO to BOS, JFK and IAD, services which JetBlue had either trimmed down or discontinued.

Critics will tell you that Virgin is losing money on those long-haul routes.  And they do have a point, given that LAX-BOS fares have typically been the lowest fares in terms of Price Per Mile (PPM) across all airlines since Virgin established that service a few months ago.

But there’s still plenty of money to be made on short-haul routes, where airlines can maximize number of passengers, not to mention potential ancillary revenue such as baggage fees, onboard snack sales, etc.

Unfortunately for JetBlue, they’re now a distant afterthought for intra-California flights.  United is still the choice for those who prefer legacy carriers, specifically business travelers and mileage program junkies.  Southwest still has its loyal fan base.  And Virgin America is the flashy new guy on the block, offering even better amenities than JetBlue, and with a corporate image on the way up instead of on the way down.  And most importantly, they’re not flying to Long Beach.

Flights to Japan for $455 w/tax…plus a stop in Vancouver

While I can’t unequivocally say that these are the lowest fares to Japan ever…these are the lowest fares to Japan ever.  At least the lowest that I’ve ever seen.

Air Canada has deals on sale (fare basis SXJPMAY & SWJPMAY if that means anything to you) for departures through June from multiple West Coast gateways including Seattle, Portland, San Francisco, Sacramento, Los Angeles, San Diego and Las Vegas.  Fares start at $382 + tax, or as low as $445 total.  These deals are $200 cheaper than anything else to Asia right now, and fares in July are almost double.  Even fares for next winter (typically low season) are over $700, so this is a great chance to take advantage of the warmer weather and scenery.

Since these are published fares, you’re best off booking through Air Canada directly.  They do offer a decent flexible-date search, although you may have some better luck with that on some of the other OTA’s or metas.

Unfortunately this fare doesn’t allow for stopovers in Vancouver, one of TFG’s favorite cities.  However, one definite advantage I found to searching on AC directly is that it returns results for itineraries that allow for ways to spend a night and almost an entire day there.  Since many OTA’s and metas only return results with shorter layovers (typically 8-12 hours maximum), your best bet to find this loophole is by booking with the airline directly.

For example, check out this option departing SFO on June 14:

1

AC5111

14:15

16:35

319

0

Vancouver (YVR)

<!– /** manage of onclick event using the prototype library Event object, which is more compliant with different browser Event.observe(id, eventype, action) */ Event.observe(‘rdo_PA0FL1FF0′,’click’, function(){ FFPOBuilder.selectRadioFlight(‘OUTBOUND’,'PA0FL1FF0′, ‘FTOURIST’, false); FFPOForm.showSeatmapLink(’0′,’1′,’0′); FFPOForm.setDateChoice(‘OUTBOUND’, ’200906161555′); }); // –> $ 457

<!– /** manage of onclick event using the prototype library Event object, which is more compliant with different browser Event.observe(id, eventype, action) */ Event.observe(‘rdo_PA0FL1FF1′,’click’, function(){ FFPOBuilder.selectRadioFlight(‘OUTBOUND’,'PA0FL1FF1′, ‘FLEISURE’, false); FFPOForm.showSeatmapLink(’0′,’1′,’1′); FFPOForm.setDateChoice(‘OUTBOUND’, ’200906161555′); }); // –> $ 191

<!– /** manage of onclick event using the prototype library Event object, which is more compliant with different browser Event.observe(id, eventype, action) */ Event.observe(‘rdo_PA0FL1FF2′,’click’, function(){ FFPOBuilder.selectRadioFlight(‘OUTBOUND’,'PA0FL1FF2′, ‘FLATITUDEP’, false); FFPOForm.showSeatmapLink(’0′,’1′,’2′); FFPOForm.setDateChoice(‘OUTBOUND’, ’200906161555′); }); // –> $ 1686

<!– /** manage of onclick event using the prototype library Event object, which is more compliant with different browser Event.observe(id, eventype, action) */ Event.observe(‘rdo_PA0FL1FF4′,’click’, function(){ FFPOBuilder.selectRadioFlight(‘OUTBOUND’,'PA0FL1FF4′, ‘FEXECREST’, false); FFPOForm.showSeatmapLink(’0′,’1′,’4′); FFPOForm.setDateChoice(‘OUTBOUND’, ’200906161555′); }); // –> $ 1937

<!– /** manage of onclick event using the prototype library Event object, which is more compliant with different browser Event.observe(id, eventype, action) */ Event.observe(‘rdo_PA0FL1FF5′,’click’, function(){ FFPOBuilder.selectRadioFlight(‘OUTBOUND’,'PA0FL1FF5′, ‘FEXECFLEX’, false); FFPOForm.showSeatmapLink(’0′,’1′,’5′); FFPOForm.setDateChoice(‘OUTBOUND’, ’200906161555′); }); // –> $ 5516

AC003

13:45 (15-Jun)

15:55 + 1 day

333

0

AC 5111 (codeshare operated by United) departs SFO at 2:15 pm and arrives in Vancouver at 4:35 pm on Sunday.  That’s still plenty of time to enjoy lots of daylight as the sun doesn’t set there until after 9:00 pm in June.  Head out for a snack, take a ride through Stanley Park, grab a few drinks, crash, wake up, have a nice brunch, and you’ve still got plenty of time to catch your 1:45 pm flight to Tokyo on Monday.

Where Will Virgin America Fly Next?

I’ve been a big fan of Virgin America since their launch.  The in-flight experience is top-notch, the service is great, they’re based at SFO (my home airport), their eleVAte rewards program is revolutionary, and best of all – they’ve got great fares.

And that’s just a consumer perspective.  From an airline industry perspective, all of those things are even more impressive.  Plus most of the colleagues I know who either work or have worked there are smarter than the average airline bear.  The bigger question is whether they can continue to offer more for less and still be profitable.  It wasn’t long ago that JetBlue was in a similar situation, and their decline has to do with more than just winter ice storms.

More on all of that later.  For now I wanted to focus on Virgin America as a Travel 2.0 company, and specifically how they’ve engaged social media.  They’ve done a great job building up followers on Facebook (over 20K fans) and Twitter (over 15K followers).  In comparison, that’s still not quite as many Twitter followers as JetBlue (503,671) or even Southwest (26,855), but substantially more than the world’s largest airline, Delta (just 749).

Keep in mind that Virgin America is a smaller and newer airline than any of those other carriers, but it’s creatively using Web 2.0 to help figure out where its new passengers will be coming from.  I’ve seen similar promotions from airlines in the past, but I can’t remember them ever sharing the results.

Virgin America did just that on their Facebook page yesterday, capping off a month where they’ve already held an in-flight online chat with Vegas techno act Crystal Method, as well as posting some fun photos from their recent SFO-SNA launch:

The results (in order) are below, and can also be found here.

1. SFO- Chicago
2. SFO- Honolulu
3. SFO- Miami
4. LAX- Miami
5. SFO- Portland
6. LAX- Chicago
7. SFO- Phoenix
8. JFK- Miami
9. SFO- Denver
10.LAX- Portland

Here’s my 2 cents on when/if any of these new routes will take off:

1. SFO- Chicago
6. LAX- Chicago

I’m guessing many of these people are like me – San Francisco travelers who are sick of United.  I was eager to cash out my United miles and cast all my chips with Virgin as soon as eleVAte came out, and that’s turned out great – I promise that I’ll devote a whole blog to eleVAte sometime before the end of the week.  Anyway, this route is dominated by United (10 nonstops/day), followed by American (5) and Southwest (3).

United is generally very protective of this route, as it connects two of their hubs.  I heard a rumor from a reliable source last summer that this was going to be Virgin’s next flight, however they surprised everyone by starting SFO-Boston in February, followed shortly thereafter by LAX-Boston, and most recently last month’s Orange County launch, featuring Shaun White (above), MC Hammer and Lamar Odom.  Editor’s note: Not a single Boston route made the top ten on the proposed list.  This may or may not have something to do with MC Hammer’s absence from that launch party.

Verdict: I think this route is inevitable regardless, but don’t know when will it happen.  The SFO-SNA flights caught many people by surprise, and sent a strong signal that VA was looking to compete head-on with Southwest in one of their strongest markets (many Southwest sales specifically exclude SNA, given its dominance at that airport).

With the exception of Vegas, Virgin is currently only flying to East and West Coast cities (and Vegas is essentially West Coast), so they’re going to need to make inroads in to Middle America soon.  Also, given the nearly $100-drop in fares on this route over the past year, I think that other airlines see it coming.

I’ll predict that VA will at the very least announce service to CHI before the end of the year, although if the economy continues to struggle then I wouldn’t be surprised to see the flights not starting until 2010.  Given how they’ve rolled out their other flights, it’s safe to assume that SFO-CHI would come first, followed a few weeks later by LAX-CHI.

2. SFO- Honolulu

Interesting, but I’m not so sure about this.  VA did send a signal that it wants to compete on Mexico routes last February when it applied for rights to fly LAX-SJD.  Those rights were eventually awarded to United, and given the Swine Flu hysteria, I doubt that VA is rushing to get in there anytime soon.  That may mean that they’d be interested in flying to Hawaii instead, but I wouldn’t hold my breath.

Although this would be a popular leisure route, it’s not very lucrative for premium class travel (First Class and Main Cabin Select), and has limited inbound potential for HNL-SFO.  United already flies SFO-HNL daily, as well as to the other islands, and Hawaiian also flies to HNL from all 3 Bay Area airports, plus Sacramento.  Until the economy (and subsequently leisure travel) pick up, I wouldn’t count on this.  Just because people voted for this route doesn’t mean that they’ve got the time and money to actually take that trip.

3. SFO- Miami
4. LAX- Miami

In the interest of full disclosure, I voted in this survey myself, and I voted for SFO-MIA.  I don’t even have any real need or interest to fly that route, hence my feelings on those daydreamer SFO-HNL votes.  However, I did used to have to fly from the Bay Area to South Florida for work a couple of times of year at my old job, where my only nonstop options were American (SFO-MIA) and JetBlue (OAK-FLL).

I have nothing against American – they’re just mediocre, and if I have any loyalty to a mediocre airline it would be United since they offer more flights to/from SFO.  I prefer carriers such as JetBlue and Virgin that offer inflight entertainment, especially on long cross-country flights.

I live much closer to SFO than OAK, and one time I had a meeting right across the street from MIA.  I still chose to fly JetBlue home from FLL-OAK simply because it’s such a superior experience to carriers such as American, not to mention the fact that it was cheaper.  Plus it’s so much easier to return rental cars right inside the terminal at FLL as opposed to offsite at MIA, it arguably doesn’t take all that much longer on that end.

Prediction: Miami is a jet-set market that fits in perfectly with VA’s demographics.  It’s just as likely to be their destination as Chicago is.

5. SFO- Portland
10. LAX- Portland

Very interesting, because SFO-PDX has historically been one of the most overpriced routes on the West Coast, with fares ranging from $200-$275 over the past year.  In contrast, SFO-SEA fares now cost half as much, primarily because Virgin shattered the price floor when they began flying this route last spring, as they also did between LAX-SEA.

Unfortunately Portland isn’t nearly as big of a corporate market as SEA is, which limits the demand for lucrative high-yield seats (ie: First Class).  However, it shows that VA has done a great job of branding on the West Coast, and that California hipsters are fascinated by Portland.

I’ll admit that I’ve now lived in SF for 11 1/2 years and have never been to Oregon, mainly because it’s too far to drive for a weekend and usually too expensive to fly.  We’re heading to Seattle for Memorial Day Weekend because we got roundtrip flights for about $100/apiece, and if we could ever get something like that to PDX then we’d be up there in a heartbeat.

There are also plenty of Portlanders who’d gladly come visit California under the same logic.  Strictly from an anecdotal experience standpoint, Portlanders are some of the most well-travelled people per capita of any US city.  The local tourism boards in SF, LA and Portland would be wise to get together with VA to make these flights happen, as the other carriers have proven that they have no interest in promoting attractive leisure fares to/from PDX.

7. SFO- Phoenix

Given the number of flights already in the market to PHX from all 3 Bay Area airports on US Airways, Southwest and United, I definitely don’t see this happening in the current economy.  Of course I could say the same thing about PDX (where Alaska Airlines dominates the market locally), which is also much smaller than Phoenix and would thus arguably have less potential.

8. JFK- Miami

The most interesting route on the list, simply because it’s the only one not to/from the West Coast, where VA’s brand is clearly strongest.  This is also arguably an oversaturated market, especially when you consider all the flights out of Newark on Continental, not to mention plenty of other regional service such as JetBlue’s nonstop HPN-FLL flights.

While it is another potential jet-set route perfectly catered to VA’s target customers, the oversaturation creates unloyal customers who are focused on price.  VA has certainly shown the willingness to be extremely aggressive on that front on similar West Coast markets such as SFO-LAS, but that was arguably more of a marketing/branding decision as much as it was a revenue decision.

VA currently flies from both SFO & LAX to 3 East Coast cities (New York, Boston and DC), as well as JFK-Vegas.  It appears that JFK would likely wind up being their East Coast hub, but expect an official decision to be made on that first before they announce what would potentially be their first non-West Coast flight.

With three proposed routes in the top ten, things are looking good for MIA to be VA’s next new destination.  It’s reasonable to assume that SFO-MIA & LAX-MIA would come first, but you never know in this business.

9. SFO- Denver

Like SFO-ORD, this is another route dominated by United, and has thus been traditionally overpriced.  Even with Denver-based Frontier Airlines (a supposed Low Cost Carrier) flying to all 3 Bay Area airports (plus Sacramento), fares prior to 2007 were typically well over $200, if not $300 roundtrip.  That started to change 2 years ago when Southwest began flying between Denver and Oakland, finally dropping them under $200.  As Southwest expanded its network to also include both DEN-OAK as well as DEN-SJC service, the price floor was again shattered.

However, I’m not so sure how well that’s doing for them.  I flew Southwest to/from Denver recently, and the flighst were maybe half full, even during peak leisure weekend hours.  I wouldn’t expect VA to start this route if Southwest is already struggling with it, even while offering the lowest rates for it in years.

Travel Agents Still Largest Whine Producers

When I got in to the travel business in late 1997, commission cuts by airlines were already in full swing, so they’re all I’ve ever known.  And having worked directly with so many different airlines while I was at vayama, I’ve heard their side of the story on that subject.

Maybe I’m a little bit too new school in my thinking, but despite having worked on the agency side for over 10 years and never once working on the airline side, I’m still backing the airlines in this strategy.

I bring this up because of the recent hub-bub about the rumor that Delta was offering agencies 10% commission on flights from New York to Latin America.  Considering that agencies are thrilled these days to even earn 5% commission, the idea of earning double-digit commissions seemed too good to be true.

And alas it was.

It turns out that the commissions are only valid for specifically authorized high-volume agencies, and to me that’s perfectly fair.  There’s an old saying in the airline industry about business and first class, and that’s that while they only account for 20% (or less) of the passengers, they account for 80% (or more) of the revenue.  Justifiably, they’re treated as such.

All businesses operate the same way, including travel agencies themselves.  And yet travel agencies, as well as the organizations who represent them such as ASTA, continue to issue hollow threats against the airlines by saying things such as “If you don’t pay me commission, then I’m not going to sell your airline.”

Bullshit.

If an airline has the best route or schedule and that’s what your client wants, then most travel agents are indeed going to sell that airline, regardless of whehter or not it offers the agency any commission to do so.  However, if two airlines are offering similar schedules and fares, and one of them offers commission while the other does not, then obviously it’s in the agent’s interest to sell the ticket on the airline offering commission.  In general, customers are now used to service fees, so if that’s what the agency needs to tack on to the price in order to make money, then so be it.

This has obviously become slightly more challenging in recent months as all of the major OTA’s have eliminated booking fees, but the concept remains the same.  I tell people all the time that buying airline tickets is like doing your taxes.  When they’re simple enough, you’re probably better off doing them yourself.  However, when they’re complicated then it often pays to go to a professional accountant.  Obviously the accountant will be charging you a fee for their service, and if they save you either time or (better yet) money, then that’s a justifiable fee.

In my opinion, there’s no reason that the airlines should have to offer incentives to low-producing agencies.  Admittedly this does inevitably create a situation where only the largest agencies or consolidators receive commissions, smaller agencies wind up ticketing through those agencies or consolidators to get the commission, and then those larger agencies or consolidators get credited with bringng in the revenue.  So the rich get richer, but is that really any different than any other segment of our economy?

That being said, it does appear to me that airlines could be more pro-active in terms of offering select commission incentives on a limited basis when necessary.  For example, with the Swine Flu hysteria that’s crippling travel to Mexico (as reported earlier this week in The Flight Guy’s Cinco de Mayo edition), it would probably make sense for the airlines to increase commissions to Mexico across all agency channels, even if it’s just temporary.  The problem with that is that it doesn’t necessarily increase demand to Mexico in hysterical times.  From the airline perspective, the more rational short-term strategy is to simply cut flights.  Hopefully those cuts will be reversed when demand increases.

Of course agencies still feel entitled to their commissions, as illustrated by these comments on the Delta situation on Travel Weekly.  Most of these are the same old complaints about the elimination of commissions, and/or Travel Weekly’s slightly incorrect reporting of the situation yesterday when they didn’t specify that the incentives were only for select agents.  In their defense, Travel Weekly is far and away the best source of news on the travel industry, and while they may have rushed this story without getting the facts completely straight, most media organizations do that.  One of the reasons that I read Travel Weekly is that more often than not, they get news out before even the suppliers do.  Furthermore, in this case they updated the story as soon as they could, and well before most other media outlets reported it in the first place.

If there’s anything more pathetic than a whiny travel agent, it’s a whiny travel agent who hides behind the anonymity of the internet to whine even louder.  I recognize the challenges faced by travel agencies, however the airline landscape has changed, and we all need to change with it.

Happy Cinco de Mayo, Amigos! Ignore the Media Hype and go to Mexico.

It’s summer blockbuster movie season, with action-packed sequels and prequels hitting the big screen.  Maybe I’m just getting old, but whenever I leave the theater after seeing one of those movies, I always seem to be thinking to myself “I feel like I’ve seen that before.”  More often than not, sequels and prequels are the same style of action scenes designed to catch your attention in trailers, and to encourage you to avoid focusing on the normally weak plot.

In travel, this summer’s most unwelcome sequel is the dreaded Swine Flu, aka SARS Part 2.

You remember SARS, don’t you?  It was the summer of 2003 and we were all just finally starting to recover from post-9/11 hysteria, and then SARS hit and we were all going to die.  It was inevitable, especially if you went to (gasp!) China.

I was working for Airtreks at the time, and it was interesting seeing the shift in travel patterns before and after that.  Immediately following 9/11, people didn’t want to go to the Middle East, and didn’t want to fly on Middle Eastern airlines.  I always found that ironic because Middle Eastern airlines are clearly not the primary target of radical Middle Eastern terrorists – American and European carriers are.  And the hype about safety in those destinations was absurd.  Even before 9/11, most Americans who had traveled through the Islamic world would’ve told you that the people are not only especially friendly, but often even friendlier when they find out you’re American.

I visited Morocco and Turkey in October-November, 2001.  Although I was inevitably asked about outrageous conspiracty theories, overall I was treated even better than my fellow European travelers, and received an even warmer welcome when I told them that I was also Jewish.  People in the Islamic world place a high value on hospitality, and are genuinely honored that you’ve chosen to visit their country.  If anything, they’re excited to see that we don’t hate them (which is what their media often tells them), and are eager to see that we don’t hate them either.

Regardless, the media told us that the Islamic world was unsafe.  And Europe was too, because there are lots of Muslims there, or Muslims who can get there, and everybody knows that all the Muslims want to kill us, so don’t put yourself in the line of fire.  Or something like that.

What I saw at the time was a huge increase in demand to areas the people deemed safe, which were not coincidentally areas where there aren’t large Islamic populations; East Asia, Latin America and the South Pacific.

East Asia, notably China and Vietnam, seemed especially popular.  When talking to clients, many of them commented that they viewed those countries as being “safe” travel destinations.  They’re both also Communist countries where freedom of expression is limited…and oddly enough that seemed to actually appeal to people, whether they openly admitted it or not.  There was just a general consensus that nobody was going to step out of line there, because we all saw what happened during the Beijing student uprisings in 1989.  For the first, and probably last time ever, the memories of Tiannamen Square arguably helped boost tourism to China.

And then in 2003 SARS hit, and everything want to hell.

Leisure and business travelers cancelled their travel plans to China (and the rest of Asia) in droves.  There were a few isolated cases of SARS in Toronto, and I had customers who demanded refunds on their Air Canada tickets to Europe.   In the end media acknowledged that things may have been blown out of porportion, but I’m not blaming the media.

I blame ourselves.  We often label “the media” as a single entity, rather than a group of individuual actors, who at the end of the day are tasked with telling people what they want to hear.  For whatever reason, we all seem to thrive on hysteria and the need for “news” 24 hours/day.  Vice-President Joe Biden certainly didn’t help the situation when he told us all to stay off planes, even if he attempted to soften those remarks later.

Luckily, media coverage this week seems to be focused more on a them of “Maybe we all overreacted just a wee bit about this,” whereas last week’s coverage was along the lines off “WE’RE ALL GOING TO DIE!”  Even on blogs and social networking sites, people appear to be discussing the issue a lot more rationally than they were last week.  If anything, the Swine Flu backlash has begun.

When the media overreacts, governments overreact.  Last week Israel declared that what we now call H1N1 be called the “Mexico Flu” because “Swine Flu” is unkosher.  After realizing the damage this caused with the diplomatic relations to Mexico, they later recanted.

In neighboring Egypt, authorities responded by ordering the slaughter of all pigs in the country, despite the fact that the virus is transmitted through humans, not pigs.  That’s disturbing because it was noteworthy that Egypt, a country with a 90% Muslim population, the majority of whom don’t eat pork for religious reasons, even allowed pork to be sold (let alone raised) in the country in the first place.  Even moderate Arab countries such as the Gulf states strictly forbid that, but in Egypt it was tolerated amongst the country’s 10% Christian population.  Many of those Christians now (understandably) view the slaughter as religious persecution.  So we can even blame media hype (which is again, our own fault) for fostering further religious tensions in the Middle East.  Nice job, everybody.

Obviously nowhere has been more devestated by this hysteria than Mexico, the world’s 8th most popular tourism destination, and a country where tourism is their 3rd biggest industry.  That industry had already been suffering from high fuel prices (and thus high airfares) for most of 2008, as well as the economic crisis (and subsequent drop in leisure travel) last fall and in to this year.  And if that wasn’t enough, most of 2009 had seen overblown media coverage of drug war violence in Mexico’s border towns such as Juarez and Tijuana, US State Department warnings about travel to Mexico, and spring breakers being told to alter their plans to visit Cancun.

I’ll never understand why gang violence in border towns and big cities would scare people away from resort destinations such as Cancun and Puerto Vallarta (where there have been no notable drug war incidents to my knowledge).  To me that would’ve been the equivalent to cancelling your trip to San Francisco or San Diego after the Rodney King riots in Los Angeles in 1992.  Even after the riots in Paris and other European cities in November 2005, I  don’t think that there was nearly an uproar about deferring travel to those destinations.

I won’t go as far as to blame racism for media coverage and public perception about Mexico now and China during SARS, but I do feel that it’s at least somewhat present.  Perhaps Westerners are just more comfortable and understanding of Western destinations such as Los Angeles and Paris, and maybe they’re just scared of what’s unfamiliar.  However, there’s a fine line between fear and hysteria, and hysteria is irresponsible and dangerous.

Unfortunately I think that 2009 is going to be a bad year for travel to Mexico, at least in the short term.  Kayak was kind enough to post some interesting stats on their blog showing that flight searches to Mexico were down by as much as 47% in some markets.

A few colleagues of mine attended the Tianguis Turistico conference in Acapulco last week, the largest tourism event in Latin America.  As if the existing media coverage about the drug war wasn’t bad enough, Swine Flu hit just before the conference.  And to rub salt in the wound, a 5.6 earthquake hit Acapulco just as the conference was beginning.  From what I’m told, most Americans at the conference couldn’t wait to get out of there, with some stuck for days because flights out of Acapulco were completely full.

But it’s not all bad news, as this excellent San Francisco Chronicle article reports.  For starters, Swine Flu hysteria has replaced drug war hysteria in the media.  Eventually we’ll all forget about this, and Mexico’s tourism sector will fully recover.  Unfortunately we don’t know how long that will take, and a lot of hard-working in Mexico (as well as tourism professionals in the US and other countries who make a living off of Mexican tourism) are going to needless suffer as a result.

In the meantime, enjoy this video from 1976:

Are Record-Low Fares to Europe Coming to an End?

In my last post I discussed the PPM filters on FareCompare, and how they demonstrated just how good the fares from the US to Germany and Moscow are right now, especially compared to other European gateways.  The bigger news isn’t simply how low they are, but when they’re so low.

The fares I discussed are especially competitive given the time of year for which they’re valid, specifically May departures.  Keep in mind that most airlines generally set prices for up to 3 seasons; low, shoulder and high.  Some airlines only use 2 of those seasons (low and high), and some even add in a fourth “peak” or “super peak” or “super-duper peak” season.

The seasonality corresponds with demands at specific times of year.  For Europe, most airlines traditionally set low season as January 1 -March 31, November 1 – December 15-ish, and December 25-31, as the weather across Europe is colder at these times, as travel demand is understandably low.  Shoulder season is set for spring and fall, usually April 1 – May 31 and September 1 – October 31 when temperatures are milder and demand is higher accordingly.   High season generally runs through the summer months, or June 1 – August 31, when the weather is best, and when kids are out of school, and when demand is highest.

This varies by airline, and from year to year.  About 10 years ago, it was fairly standard for most airlines to raise their fares to high season levels starting around June 15.  This slowly began being pushed back to June 1 as airlines realized that the demand in early June was still very strong, especially among regular travelers who knew to book their flights for early June when they could usually save about 50% off flights departing at the end of the month.  Up until last year, many airlines had even pushed peak season up to begin around Memorial Day, figuring that’s really when the de facto start of the summer travel season begins (as opposed to 1 week prior to the summer solstice, which had seemingly been their previous benchmark).

The current economic outlook has caused a seismic shift in seasonality this year.  Airlines tend to generally publish aggressive fare sales to Europe in Q1.  Lowest fares are typically offered for last-minute travel from January-March, which as I previously mentioned is already low season.  There may also be some sort of discount offered for shoulder (spring) and high (summer) season travel as well.

From the airline’s revenue standpoint, Q4 is usually weak for international travel, especially to Europe.  There is consistent demand in late December around the holidays, although this is comparatively higher to other regions such as Asia, Latin America and the South Pacific at that time of year versus other months.  Revenue to Europe is expected to be soft in Q4.  It’s expected to be almost non-existent in Q1, as the entire quarter falls within what’s generally defined as low season, and anything earned is considered to be gravy.

Since the recession unofficially began last fall, Q4 was especially weak, with sales throughout most sectors dropping at least 20-25% from the previous year.  And in Q1 there was hardly any gravy at all.  Furthermore, outlook for Q2 & Q3, typically the strongest time of year for trans-Atlantic travel, was miserable.

In less seasonal industries, companies would reduce prices until further notice to compensate.  However, in airline revenue management, summer revenue is so critical that airlines simply can’t afford to offer huge discounts on them.  They may drop well below forecasted or year-over-year levels, but you’ll never see fares to Europe for June-August travel like what you’ll see at other times of the year.  Airlines pay their bills for the entire year with those revenues, and dropping them substantially means redoing all their budgets for next year.

Instead airlines reacted by dropping fares for spring travel, offering deals that we often don’t see for winter travel.  For example, when I started in the industry working for Council Travel in 1997, any fare to Europe for under $500 out-the-door including taxes from San Francisco was considered a great deal, as was anything under $300 total from the East Coast.  Even the lowest supposed “$99 fares” from New York to London were generally for each way (based on round-trip purchase, so really $198 + tax) before taxes.  There would typically be at least 2-3 sales/year that would get within that range, almost always for travel in January-March.

In more recent years, airlines have led in with more deceptively low fares, that were offset based on not only the bogus “each way based on round-trip purchase” requirement, but also by record-high fuel surcharges.  Those fuel surcharges alone were as much as $300-$400 roundtrip to Europe last year.

When oil costs were sky-high, airlines simply couldn’t afford to get that aggressive with fares, although they still did manage to come up with some fares in the $450-$500 total range from San Francisco in early 2008.  Most of those same routes were $600-$800 for spring travel.

This year, fares have actually come down for spring travel, when they’re normally supposed to go up.  Unfortunately many people assume this means that airlines are desperate and that fares will continue to go down.  I’ll guarantee that won’t happen anytime soon, and if it does, it certainly won’t be for peak season summer travel.  They might be lower than they were last summer, but they certainly won’t be anywhere close to what we’ve seen for April & May this year.

For example, fares from San Francisco to Frankfurt (and just about anywhere else in Germany) start at just $395 for May departures.  June-August fares start at $535, which is still an incredible deal for peak season travel from the West Coast.  I can comfortably say that $1000 was the going rate for summer fares to Europe for the past 10 years, if not closer to $1200-$1300.  However, keep in mind that those summer fares are still 25% higher than what they are for May departures.

More importantly, checking the same route for fall/winter travel shows fares of $664 for November departures – typically one of the cheapest months of the year to fly to Europe.  That price represents what the airlines want to be charging during low season, which illustrates just how low they’ve already dropped their prices for spring & summer.

San Francisco to Dublin fares can still be found for about $376 for May travel, but prices in June-August go up to at least $656.  That’s a 74% increase, which (yet once again) shows how great the Germany fares are.  Regardless, $656 to Dublin from the West coast is still a great deal.  Even next winter, fares on that route don’t drop below $568.

Eventually the airlines will have no choice but to stop dropping European fares for their bread-and-butter summer season.  They may not get much higher, and by mid-summer (usually around mid/late-July) they may lower fares for August travel.  More likely, they’ll start using the fall and winter seasons to entice real price-conscious budget travelers with low fares, and then keep their fares higher for the remainder of the summer.

There are no rules to this game.  The short answer to “When should I buy my tickets?” is simply, whenever you’ve found a price and set of travel dates that works for you.  Realistically, if you can afford $395 to fly to Germany, then you can afford $535 as well.  And if you can afford $535 to go this summer, then you’d be crazy not to, and even crazier to not book your tickets soon.

Happy May Day, Comrades! Let’s All Go To Moscow!

Today is May Day, or International Workers Day as it’s known by communist sympathizers who disapprove of being referred to as communists.  San Francisco’s Rainbow Grocery is closed today in honor of the occasion, and The Flight Guy will mark the day by blogging about Moscow, once the home of May Day’s wildest and craziest parties (although none quite as wild as Queen’s Day).

In yesterday’s blog I mentioned that fares to Germany are so cheap right now, that they justified flying in to a major German airport as an alternative to other nearby European cities such as Amsterdam.  The same could easily be said of other popular cities, especially in Eastern Europe, such as Prague, Krakow, etc.

Not only are these cities easily accessible from major German air hubs such as Frankfurt and Munich, but most airlines have common-rated fares to smaller airports in eastern Germany such as Leipzig and Nuremberg.  Granted those smaller airports generally involve taking an extra connecting flight, so your best bets if you want to combine a trip to Germany with to other countries in Central/Eastern Europe would be to fly to a major gateway such as Berlin or Munich, and then invest in a Rail Pass that covers Germany and the other countries that you want to visit.  You can also play around with Rail Europe’s Pass Finder to explore all of your options.

Fares to Germany are so low right now, that they account for 99 out of the 100 best deals from North America to Europe right now in terms of Price Per Mile (PPM).  I mentioned in yesterday’s blog that I’d be sharing some travel site tips with you, and for this purpose I can’t say enough about FareCompare’s Flyer Talk Fares.

As someone who used various GDS (Global Distribution Systems) professionally for years, as a fare geek I’ve found it frustrating being without them.  Luckily FareCompare provides some decent tools for both professional and amateur fare geeks to analyze what’s in the market.

Of those top 100 PPM fares to Europe, the only one that isn’t to Germany is from New York to Moscow on Delta, which comes out to the bargain price of just $339 including tax for departures in May.  Technically it’s ranked #98, although fares #78-#100 are all statistically about the same, coming it at just 3.6-3.62 cents/mile.

It’s a significant fare not only because it’s the only fare in the top 100 that isn’t to Germany, but it’s also the only one on that list that isn’t from California (69) or Texas (30).

Recent domestic fare wars have lowered the bar for what airlines need to charge from the West Coast to Europe, but I’ll focus on that more next week.  For the time being, why is Moscow specifically the best deal in terms of PPM off the East Coast?  The short answer is competition.

Up until the recent economic meltdown, Russia’s financial growth was booming, fueled largely by its vast supply of natural resources (notably oil and gas) and a robust commodities sector.  And as Russian business boomed, demand for air travel to/from the country increased along with it.

For many years, Moscow was only reached by direct flights from the US on Aeroflot, which currently offers nonstop flights between Sheremetyevo International Airport (SVO) and New York (JFK), Washington DC (Dulles) and Los Angeles.  Aeroflot also used to operate flights to Anchorage, Chicago, Miami, San Francisco and Seattle, all of which were discontinued between 2001-2003.  The airline even flew trans-Pacific routes from San Francisco-Vladivostok and Anchorage-Khabarovsk, making it the only airline in the world to operate completely around-the-world service.

As for Moscow, most Americans traveled there via another European gateway such as London or Frankfurt on a European airline such as British Airways or Lufthansa.  That begin to change a couple of years ago when Delta Airlines continued its European expansion with nonstop flights from JFK to Sheremetyevo, which were recently complimented with additional nonstop flights from Atlanta to Sheremetyevo.

American Airlines crashed the party last summer when it began nonstop service from Chicago (O’Hare) to Moscow’s newer and more comfortable (ie: less Soviet) Domodedovo International Airport (DME).  And earlier this spring, United Airlines, which had previously been funneling passengers to Moscow via Frankfurt using codeshares with its partner Lufthansa, also began nonstop service to DME from Washington Dulles.  US Airways has also secured traffic rights to begin flying to Moscow from its hub in Philadelphia.  That leaves Continental as the only major US airline out of the mix, which is somewhat ironic considering that until recently they offered flights to the most international destinations from the US (they were recently surpassed by Delta’s aggressive expansion, and are now a distant second thanks to the Delta-Northwest merger).

Like everything else in the free market, airfares are dictated by the laws of supply and demand.  Judging by the low fares to Moscow from across the country, not just New York, there appears to be a huge glut in supply as well as little demand.

When United entered the market earlier this year, they were offering fares from about $500-$600 from the East Coast, and about $600-$700 from the West Coast to Moscow, including taxes.  Those were on par with what has been offered in low season (January-March) over the past few years, including 2007-2008 when oil prices (and subsequent airline fuel surcharges) were at record highs.  Thus they were simply trying to tap in to existing demand, and weren’t doing anything to try to increase demand.  That’s a questionable strategy when launching a new route in a healthy economy, and it’s downright stupid when trying to do so in a recession.  It’s even more suspect to a market that has been so adversely affected as Russia.

As a result, fares began plummeting on all airlines, not just United.  It’s not surprising to see Delta being especially aggressive in this market, considering how highly they value market-share in their ambitious international expansion.

So now there are deals to Moscow to be had from just about anywhere in the US, often costing much less than fares to what have traditionally been cheaper Western European gateways.  For example, fares from San Francisco to Moscow are now as low as just $537 with tax, whereas fares from SF to Amsterdam start at $684.  Singapore Airlines recently began nonstop service from Houston to Moscow, partially as a fueling stop en route to Singapore, but also as a way to capitalize on connecting two of the world’s biggest energy markets.  As a result, fares from Houston-Moscow can be found for under $500, whereas fares to London, Paris and Amsterdam are all over $500.