Saw the Q&A below from AMR (Amercian Airlines) on July 15th.
Michael Linenberg – Banc of America
Tom, you gave us the booking view for the third quarter, down 1.5 points. Correct me if I’m wrong, but I think we are seeing a much shorter booking curve or a more compressed booking curve this year versus last year, and if that is the case, what do bookings look like closer in because that may give us a better sense or maybe adjust for the fact that people even leisure passengers seem to be waiting until the last minute to make their bookings.
Thomas Horton – AMR CFO
I think you’re absolutely right about that, Mike. We’re seeing some later booking than we have customarily seen. Unfortunately that revenue is not technically the best revenues, so we’re still suffering from a negative mix effect, but clearly there has been some late booking, which is why our actual load factors came in a little bit better than we had guided to when we talked 90 days ago.
This is just updating some of the quotes I’ve shown before on the same topic, but it may have an interesting impact on the airline’s ability to generate ancillary revenue. The link with the booking window quotes above also has a chart illustrating why a contraction between air purchase, and hotel / rental car purchase is a good thing for the airline (just the Bow Tie Model in practice), but I never intended for the airline curve to shift down, it was always supposed to be the other curves on the chart moving up!
Japan Airlines just signed with Hotels.com, so I’d be curious to know how much of a lure an extra 100 frequent flyer points is versus more effective marketing of the offer to customers through a broader range of media than the JAL website itself. I’m not on the hotels side of the business, but I do believe that the negotiation is often largely around increased commissions rather than how to increase overall sales and therefore increase total ancillary revenue to the airline. The shortening of the booking curve has a negative impact on change fees, as David Barger of JetBlue said, but it also presents a very good opportunity for airlines to increase the conversion rates for other lines of ancillary revenue. The reason is that passengers almost always buy items such as a hotel or rental car prior to boarding the plane, so maybe the bow tie needs to be updated again, although this time it might look a little lop sided. At least there may now be less time for non air competitors to grab these sales, so long as the airline promotes its offer correctly. I’m trying to put a silver lining on the negative news coming out of an airline’s revenue management department – time will tell if there was any substance to this, or if it was just wishful thinking.