Buckle Up Your Seat Belts, It's Going to Be a Bumpy '01 - Brief Article - Statistical Data Included

Brandweek, Jan 8, 2001 by Mike Beirne

The question for the travel industry is not how long oil prices can stay under $30 a barrel, but when do the hedge contracts air carriers bought to keep a lid on escalating jet fuel costs expire? And after fueling all those planes, how much money will they have left in the marketing till?

For example, SAS Scandinavian Airlines is developing a U.S. ad campaign that initially calls for TV buys, but cost might scale those plans back to radio and print.

"The issue of rising fuel cost is paramount, not just for U.S. carriers but for European airlines as well," said Anders Bjorck, SAS director of marketing communications. "You can't hedge forever. Eventually you'll have to pay."

Smaller airlines already are paying the price for fuel prices that have doubled since last summer. Las Vegas-based National and Dallas-based Legend filed for bankruptcy protection and Fresno, Calif.-based Allegiant Air cut back service to four of its eight destinations. Labor costs in this pattern-bargaining industry will climb too as pilot unions demand the same raises United pilots recently won. Both factors could trigger fare increases. Meanwhile, November traffic figures showed demand was softening. Now everyone in the travel industry is watching to see what impact home heating bills will have on leisure travel.

"If airlines start to see loads falling, you can bet that fare sales will not be that far behind," said Holly Hegeman, industry analyst.

Will the ad dollars left over be used to tout discounts or products? Depends on what the airlines have. This year could show whether the extra legroom American Airlines put in coach will help it win market share. American already is using "More Room in Coach" to give itself an edge in grabbing group and meetings business, said Jennifer Brock, national sales manager.

"[Star] has a lot more information, and they're not doing this stuff blindly," said John Diefenbach, partner with New York and London-based branding consultant Wolff Olins. "You have a world now where information is king."

If seamless service is a draw, Continental and Northwest could ballyhoo their e-ticket network, which lets passengers traveling on both carriers avoid converting an e-ticket to a paper ticket when they change itineraries. International road warriors are the most profitable passengers and United, thanks to its Star Alliance partnership, may be in the best position to dangle seamless travel for attracting those folks. Star, founded in 1997, has gathered sufficient data by now to figure where the savings and revenue can be made in deploying aircraft and appropriate services.

United, by virtue of revenue sharing and traffic feeds with Star members, is looking to reap $250 million in potential revenue next year. Additionally, the ability to schedule service to more cities by using the other 14 alliance members' planes can potentially cut costs by a third. So even with rising fuel and labor expenses affecting all airlines, United, thanks to its alliance, has a greater ability to grab market share by passing the savings to passengers and sustaining those discounts longer than competitors can, said Diefenbach.

The economic slowdown probably won't bite luxury cruise lines like Cunard or Crystal. Their target market is empty-nest baby boomers with discretionary income and a mind-set that vacation is a God-given right. They're traveling no matter how high the heating bill. Crystal, however, will court consumers who want less regimen in their trips by offering casual dining with a relaxed dress code on two of its ships.

But the mass-market brands have an uphill battle to fill the new ships they've added without leaning heavily on discounts. With more than 30 brands for consumers to chose from, look for more advertising that aims to set brands apart from the pack. Carnival already is rolling TV ads with passenger testimonials. Holland America rolls TV this year that dumps its understated message for a more contemporary and energetic positioning. Norwegian is differentiating its brand by breaking the sailing regimen of assigned dining and dress codes with Freestyle Cruising, while Royal Caribbean touts itself as the cruise line that breaks sedentary stereotypes by directing consumers to test drive a ship vacation through flash and streaming video technology on its Web site.

"The Internet will figure more prominently in the industry, not as a source of bookings but as a way to market and differentiate the brand," said Murray Markin, president of Strategic Decisions, a Boca Raton, Fla., cruise consultant.