Low fares mean perks are harder to come by

Airlines are trying to balance survival with keeping their frequent-flying customers happy.

PHILADELPHIA - At a forum with US Airways earlier this month, some elite business travelers presented one of the airline's executives with a gift full of symbolism: a container of ripe limes.

"In case you don't notice, this is a green lime," said Greg Johnston, a top-level elite flier from Hickory, N.C. His light-hearted jab drew chuckles from fellow frequent fliers unhappy with the brownish limes in their drinks in the first-class cabin of US Airways jets.

The perks of achieving elite status on the financially ailing carrier aren't what they used to be. Forget about glassware and hot towels on domestic flights in first class. If you get a meal, these preferred fliers say, it's not as good as what customers can buy for $10 in coach.

Just winning an upgrade to the front of the plane, with wider seats and extra legroom, isn't a sure thing. The airline has reduced the size of some first-class cabins and replaced full-size jets with smaller, all-coach regional jets.

US Airways faces a dilemma: How does a traditional carrier keep its best customers happy while struggling to survive when even business travelers are paying low fares?

"It's a careful balance to build a business plan around the hope that high-paying customers are going to come back," said Christopher Chiames, senior vice president for corporate affairs and recipient of the green limes. "It's a precarious position to be in."

US Airways feels the pinch more than other full-service airlines. The carrier remains saddled with some of the highest costs in the industry and says it must cut about $1.5-billion in operating expenses to survive against low-cost competitors such as Southwest Airlines. Last week, chairman David Bronner said employees must agree to a third round of pay and benefit cuts worth $800-million within 30 days or the airlines could be liquidated.

Other traditional airlines are likewise torn between reducing costs and keeping repeat business travelers from bolting to competitors.

Delta Air Lines, the nation's No. 3 carrier and the largest at Tampa International Airport, has lost more than $5-billion since 2000. Delta has warned that without major cost reductions, including $1-billion from pilots, it will file for bankruptcy reorganization.

The airline angered frequent fliers by tightening up on "waivers and favors," lifting fees and ticket restrictions for special customers. Some SkyMiles members balked when Delta cut credits they earned for elite-level status when buying deeply discounted tickets.

Delta Medallion SkyMiles members - Silver (at least 25,000 qualifying miles a year), Gold (50,000 miles) and Platinum (100,000 miles) - say the airline has given employees more leeway in granting waivers and favors since chief executive Gerald Grinstein took over this year.

Medallion fliers don't have the chance, though, for a first-class upgrade on flights from Tampa International to some key business cities. The only nonstop flights to New York City and Boston are flown by the carrier's low-cost, all-coach division, Song.

United Airlines frequent fliers also are out of luck looking for a first-class seat from Tampa International. The airline's only service from Tampa is on Ted, United's coach-only carrier.

A first-class seat is the Holy Grail of perks for business travelers who need the extra space to use a laptop or do other work, says Robert W. Mann Jr., an industry analyst in Port Washington, N.Y.

"The risk of Ted or Song is they remove the first-class upgrade as a possibility," he says. "They're pulling away the single most valued part of the equation . . . telling people to choose another carrier."

While business travelers may feel shortchanged, their shift in spending habits made a shambles of the traditional airline business model.

Hub-and-spoke carriers with global route systems charged business travelers fares many times higher than what leisure travelers paid for the same seat. They did that by placing premiums on tickets that were purchased at the last minute or didn't require a Saturday night stay.

Companies complained bitterly about the disparity. They couldn't do much about it, however, until low-cost carriers such as Southwest, JetBlue and AirTran spread into more big markets and the Internet made comparison shopping available to anyone with a personal computer.

Businesses cut back travel as the recession kicked in during the spring of 2001. Many companies kept policies that restrict all but top executives to flying in coach on the cheapest possible ticket.

Traditional airlines used to count on 40 percent of revenue coming from the 7 to 9 percent of customers who were top business travelers, says Darryl Jenkins, a visiting professor at Embry-Riddle Aeronautical University in Daytona Beach. Now, that segment makes up about 6 or 7 percent of customers and pays 25 percent of revenue, he said.

Holding onto elite fliers remains critically important to airlines, Mann says. But they also need to reduce their costs to somewhere close to those of Southwest and JetBlue, which make money and don't offer first-class cabins or meals on board.

"The expectations created in the '90s was that the airlines would do anything to retain or convert these individuals," the analyst said. "The problem is now they're caught between a rock and a hard place."

At the meeting with elite customers at Lincoln Financial Field, new home of the Philadelphia Eagles, US Airways executives said the airline will fight to keep their business. They also cautioned the customers to keep expectations under control.

The airline's turnaround plan includes going head-to-head with discounters with matching low fares, called GoFares, with fewer restrictions and lower fees for changing tickets.

Still, US Airways hopes to get slightly higher prices at close-in, big city airports such as New York's LaGuardia, Ronald Reagan Washington National and Boston's Logan. The airline will keep first-class service, for now at least.

Frequent fliers at the meeting first banded together two years ago on Web bulletin boards to fight US Airways' crackdown on business travelers using cheap, nonrefundable tickets. They adopted the name US-Cockroach in recognition of their lowly status with the airline. Leaders started a dialogue with US Airways executives and set up the forum to exchange viewpoints. (They also changed their name at the meeting to FFOCUS, or Frequent Flyers Organized and Committed to US Airways Success.)

Elite fliers such as Greg Johnston wanted to know how US Airways will decide who gets priority on first-class upgrades.

Now, all elite-level members qualify for upgrades on even the cheapest tickets. On other airlines, elite customers can get trumped by lower-level elites or even nonmembers who pay more for their coach seat.

"If I pay a $29 GoFare, I want to know how people get upgraded," said Johnston, a top-level Chairman's Preferred member who works as a regional sales manager for a North Carolina furniture manufacturer.

Others recommended restoring perks US Airways has cut. Chairman's Preferred members used to receive free upgrades to business class on trans-Atlantic flights.

Returning the upgrades would entice members to buy coach tickets US Airways might not sell otherwise, said Chris Friese, a nurse researcher at the University of Pennsylvania and Gold Preferred member.

He also suggested giving elites more reward options on using mile credits besides a ticket for a cramped coach seat. "These guys with millions of miles need a domestic ticket like they need a hole in the head," Friese said.

US Airways executives listened to ideas, without committing one way or the other. Except in the case of a traveler who asked if the airline would give elite members advance notice of fare sales - a violation of federal law.

"I'd go to jail for that," said Barry Biffle, managing director for the airline's marketing and revenue development. Biffle then offered to send sale announcements by e-mail if the customer gave him specific places where he liked to travel.