Mike FriedmanThis Week In Travel
Air Travel Is Now More Expensive Than Ever
Two years ago, the airlines were in panic mode. The country had just begun its unofficial lockdown and travel came to a halt. Revenue management models, the algorithms that told airlines how much they could charge for tickets, had become useless, since there was no price at which people would get on a plane. United Airlines had the most pessimistic outlook, estimating that sales would be down as much as 40%. Turns out that they were only wrong by about 60%.
Welcome To The New World
And now? Airlines are seeing record demand for travel. Cooped-up families and anxious business travelers have all decided that it’s time to get back on the road. But after years of losses and devastated balance sheets, the airlines have been cautious about bringing back capacity. Combining these two factors will lead to ticket prices significantly higher than they are today.
And it’s going to get worse. As you probably know, virtually every major American city has a single, maybe two, dominant air carrier(s). For example, if you’re flying out of Atlanta, you’re probably on Delta. Houston gets you United, while Dallas means that you’re probably going on American. In a “normal” environment, airlines will occasionally skirmish by stepping into each other’s territories. But with oil over $100 per barrel and the economic situation still tenuous, they’re hunkering down and eliminating any possibility of excess capacity.
How Happy Are The Airlines?
Air Travel Is Now More Expensive Than Ever
Just how happy are the airlines? “Loving life” doesn’t even begin to describe it. At the JP Morgan Industrials conference last week, American said that demand had never been higher and that it had three straight days of record bookings. Delta increased its revenue guidance significantly above its previous estimate. United said that business is booming and that it would have no trouble passing along the higher fuel costs to passengers.
History tells us that the airlines will eventually get greedy and start adding back capacity, but it may also take longer than it normally would for prices to come down. In 2003, for instance, when the country was recovering from the 9/11 attacks, there were seven major domestic carriers. Now, there are four, so the competitive environment is significantly more attractive for the companies. There’s no reason to push their luck. Combine that fact with the airlines’ high levels of debt and the sudden rebirth of demand and the airlines will feel no rush to risk their profits. For now.
Use Your Miles! NOW!
If you want to book flights now, there is no better time to use miles. First, as we noted above, prices are going through the roof. But airlines have also spent the past two years supporting themselves by selling miles to credit card companies. Since airlines aren’t suddenly going to open up every seat on the plane for awards, the only way for airlines to burn off those liabilities is to raise the amount of miles that they charge for tickets. See where I’m going with this? American still has an award chart with a few levels of fixed pricing for its mileage tickets, but Delta and United both have variable pricing, and I would assume that all three airlines will be making changes.
Miles Are A Depreciating Asset
Occasionally, I run into someone who likes to brag about how many frequent flyer miles they have in their “bank,” but I don’t view that as anything to get excited about. Miles are a depreciating asset, and the best thing that you can do is maximize their value by using them as quickly as possible. That’s also the reason that I like to concentrate on credit cards that offer proprietary points, such as Citi ThankYou, Chase Ultimate Rewards and American Express Membership Rewards. I have several options for what I can do with those points. It’s great to have some airline miles for an emergency, but there’s no glory to holding millions of miles in your accounts.
Other Fun Stuff this Week
- I saw a Facebook posting for the “Mastercard Black Card,” their entrant into the luxury category. But what really caught my attention was that they bragged about how it is the heaviest card on the market. Heaviest? that’s a benefit now? Great, I’m going to cover a brick with gold paint, put 16 random numbers on it and charge $2,000 per year.
- And you thought COVID was the only thing that you had to worry about on a cruise ship. Beware of the Killer Waterslide.
- Of course, it could be worse. At least those passengers eventually made it back to their port, unlike this Norwegian cruise, which seems to have abandoned at least some of its passengers.
- Ew.
- It’s not exactly Space Mountain, but I thought that some of the concepts in the “Airline Cabin of the Future” looked pretty cool.
- A good review on the new British Airways Club Suites from Gary Leff. BA Club had always been a sort of “premium economy,” so it’s nice to hear that they’re investing in the product.
- And one final note: We spend a lot of time talking about loyalty programs but, as Gilbert Ott points out in this article, hotels like the Four Seasons offer such a strong product that loyalty programs really aren’t necessary. Sometimes, it really is worth the price.
