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Northwest cuts biz fares
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February 10, 2000: 3:38 p.m. ET
Eliminates need for Saturday stay for discount, but predicts more revenue
By Staff Writer Chris Isidore
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NEW YORK (CNNfn) - Northwest Airlines has changed its fare structure for business travelers, allowing discounts of up to 40 percent off regular fares without requiring a Saturday night stay.
The program, known as BizFlex, is expected by the airline and analysts to be widely matched in the industry. Trans World Airlines (TWA: Research, Estimates) moved to implement similar programs almost immediately.
America West Holdings Inc. (AWA: Research, Estimates) reportedly also matched the offer, although an official of the carrier couldn't confirm such a move.
Other carriers, such as industry-leader United Airlines, said they are studying the offering.
Northwest (NWAC: Research, Estimates) officials estimated the change would add about $50 million of revenue annually. According to Tim Griffin, executive vice president of marketing and distribution for Northwest, about 25 percent of travelers now paying full-price business fares may take advantage of the program.
But the airline believes it will see more gains by upgrading the tickets of price-conscious business travelers, who currently stay at a destination through Saturday and book two weeks ahead to get tickets at 50-to-55 percent below full fare.
Griffin says Northwest can get those travelers to pay slightly more for the BizFlex fare because they will save hotel and other expenses by not extending their stay. Those passengers switching from the lower-price economy ticket to BizFlex are expected to outnumber those who switch from the full-price ticket by about five to one.
The airline believes about 6 percent of its seats will move under the new equation. It said it tested the program over the past year on North and South Dakota routes.
"Five years ago the business traveler who stayed over Saturday who didn't want to was very small. It's grown tremendously over that time," said Griffin.
BizFlex will require about 10-day pre-purchase requirement, as well as a one-night stayover. A $75 penalty for changes in the ticket after booking will also be assessed.
Airlines have seen profitability pressed by soaring fuel costs, and all the major carriers have announced some form of fuel surcharge recently.
Analysts were not as convinced as Northwest officials that the change will be positive for carriers' revenue streams.
"We're a little concerned that there could be revenue dilution, but we're taking a wait-and-see approach," said Susan Donofrio, analyst with Deutsche Banc Alex. Brown. Still, she believes that other carriers will not take a wait and see approach and will follow rather quickly. "You never want to be at a pricing disadvantage," she said.
Ray Neidl, analyst with ING Barings, said he thinks the new structure will be about a wash for airline profitability. "I think it's the yawn of the century so far," he joked. "My theory is one of the reason they're doing it is to try to win back business travelers they lost during the (1998) strike."
Griffin denied that such is the case, saying the airline's statistics show that the carrier recovered lost business by last summer.
"We're not trying to bring people who used to be with us or steal market share," he said. "We're just trying to change the economics of these fares."
He said that the test in the Dakotas produced more new business and virtually no loss of full-price tickets, but the company decided that was too optimistic to use in its business model. But he said the $50 million additional revenue projection might prove to be very conservative. "Whatever the figure is, it pretty much drops straight to the bottom line," he said.
Northwest, the nation's fourth largest carrier, had 1999 net income of $300 million, or $3.26 a share, on revenue of $10.3 billion.
The program will not stop Northwest from following other carriers in other pricing promotions, such as a limited-time 40 percent discount on some vacation fares announced by Delta Airlines (DAL: Research, Estimates) this week, and matched by Thursday by United Airlines, a unit of UAL Corp. (UAL: Research, Estimates).
Shares of Northwest fell 1 to 17-1/2 in late afternoon trading Thursday. 
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Northwest Airlines
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