LOOKING BACK ON AIRLINE DEREGULATION, which he guided as head of the Civil Aeronautics Board in 1978, Alfred E. Kahn wrote that although deregulation greatly benefited most airline passengers, it also resulted in “a limited reemergence of monopoly power and the exploitation of a minority of customers.” That minority is you — and the employees and meeting attendees you want to put on planes for something less than an exorbitant price.
But for the past decade, there's been someone in your corner, shining a spotlight on airlines' monopolistic practices and relentlessly pursuing fairer fares: Kevin Mitchell, crusader against the gouging of the business traveler.
“I wouldn't describe myself as a crusader,” Mitchell says. He prefers “Mr. D,” a nickname given to him by Rolfe Shellenberger, formerly of Runzheimer International: The D is for “dogged, deliberate, and determined.” Indeed, when you're working to change a massive industry through hours of testimony before government bodies and hundreds of interviews given to the full spectrum of trade and commercial publications, dogged is more apt than crusader.
The Debate Begins
In 1994, Mitchell left his job as vice president, human resources at CIGNA and created an air travel buying consortium representing 16 corporations (including CIGNA). The group, then called Business Travel Contractors Corp., wanted three things: net airfares, travel agencies paid by customer fees rather than airline commissions, and a simplified airfare structure. The first two are here to stay; the third, Mitchell believes, is on the horizon.
In 1996, BTCC evolved into the Business Travel Coalition. No longer a buying group, BTC's mission was advocacy, and its sights were set on broader air transportation issues, the biggest being competition. One of BTC's early efforts was a pair of 1997 Washington Summits on the topic. They were sponsored by Sens. Bill Frist, R-Tenn., and John R. McCain 3rd, R-Ariz., and Reps. Louise Slaughter, D-N.Y., and James Oberstar, D-Minn., and attended by hundreds of corporate, travel agency, airline, airport, government, and press representatives. “The most important thing we did was the competition debate,” says Mitchell. “It caused the major network airlines to throttle back on their most extreme responses to new entry. The national media engaged the issue in a big, big way, shining a bright light on [the majors'] predatory competitive practices.”
Where We Are Now
The story is still about competition. The 9/11 attacks, continued threats of terrorism, the war in Iraq, severe acute respiratory syndrome, and a long economic downturn have taken a huge toll on the major airlines. But none of those contributors to the airlines' enormous revenue losses — and bankruptcy, in three cases so far — has made them do the major restructuring required for survival. It is competition, says Mitchell — from AirTran, Frontier, JetBlue, ATA, Spirit, and Southwest — that will fix the industry's fundamental problems. “Absent the strength of the low-fare segment, the majors would just wait this out,” he says. “But the game has radically changed. In 1992, low-fare carriers had 9 percent national market shares. Today it's 25 percent. They've reached critical mass. These guys are here to stay.”
The major airlines have been slow to acknowledge that things are never going back to the way they used to be, he adds. “We're at a historic crossroads. True structural change will have to happen. The old premise was that when the economy comes back, business travelers will once again go ‘uptown’ — back to the major carriers — and pricing power will return. That's outdated thinking. Now, the low-fare carriers have better aircraft, route structures, and great management teams, and passengers are treated well.”
Furthermore, he points out, while air travel management used to be a “corporate backwater,” it's now front and center on the CFO's desk. Companies are paying much more attention to their travel spending and will put their money with carriers they see as partners — when they put their money in the air at all. “The airlines stand alone in treating their very best customers with near disdain,” Mitchell says. “With so many alternatives to the middle seat on a major carrier, the airlines have to address customer issues.”
What It Means for You
A year from now, the industry will still be struggling as the majors lose additional market shares to low-fare carriers, Mitchell predicts. “And there will probably be a failure,” he adds. In fact, he cautions planners to be alert to the threat of failures. “They book so far in advance, they should be worried about who is going to survive and who is not.”
As carriers continue to cut costs over the next few years, he adds, planners can expect “volatility in the number of seats available and schedule changes,” which will put more pressure on them “to ensure that there are no surprises” — the top producer arriving at the airport to find his flight canceled, for example. “The role of the meeting planner and the relationship between the planner and the supplier will be that much more critical.”
He also advises planners to “constantly look atterms with a fresh set of eyes,” and consider some kind of interruption insurance.
Five years out, he believes, “there will be far more competition. Those majors that are around will be more efficient and more focused on the customer, and market shares will have stabilized. We'll reach an equilibrium where they [majors and low-fare carriers] will be equal in influence.”
He also sees a simpler fare structure and lower business fares coming as airlines try to regain the trust and loyalty of business travelers and meeting organizers. “They need to rationalize the fare structure to meet business travelers' needs — so they believe in it enough to rely on business travel as a communications tool.”
Survival of the Fittest
Mitchell's “equilibrium” will come about as the low-fare carriers creep up on the majors' big advantage by adding planes to increase flights and markets served (see sidebar, page 18) and as the majors take a page from the discount carriers' playbook by streamlining operations and lowering fares.
But for the majors to make this happen, with their massive hub-and-spoke systems and huge work forces, they must radically cut costs and dramatically increase asset productivity. Increasing asset productivity means, for example, getting more hours per day out of planes and more hours per month out of pilots, Mitchell explains.
One carrier, American, is on its way to doing these things, he says. American has modified the hub-and-spoke schedule by evenly spacing flights throughout the day rather than bunching them up. That has increased productivity by keeping planes on the ground for less time, reducing the number of gates needed, and giving ground crews regular work schedules rather than peaks of activity. “American probably has the smartest management in the business,” Mitchell says. “They understand very well that they have to meet Southwest head-on.”
As demand picks up — which, inevitably, it will — American will be able to capitalize on its advantage over the low-fare segment: broader reach and more frequent flights. Even there, however, American is playing it smart. In July, the airline announced that it is dropping some unprofitable routes and flights and that by 2004 it will have eliminated 114 planes from its fleet. “I'd bet huge on American,” Mitchell says.
Where we are today — possibly on the brink of a truly competitive and service-oriented airline industry — is due in good measure to Mitchell's dogged, deliberate, determined efforts to get the word out to all constituencies about how the airlines operate. BTC threw itself in front of the rolling train of the proposed United-USAirways merger in 2000, for example, and after the proposal was rejected, one airport executive director wrote Mitchell a letter giving him the credit. And consider this from Rep. Louise Slaughter: “Without Business Travel Coalition we might be in a different position,” she wrote to Mitchell. “You have provided my office, other members of Congress, the Department of Transportation, the Department of Justice and the states' attorneys general with critically important information to make our cases against the merger.”
When he's not on Capitol Hill or talking to The New York Times, Mitchell,47, might be home in Radnor, Pa., spending time with his wife (“Saint Linda”) and 13-year-old son or pursuing his love of cooking (he was once executive chef at Whitemarsh Valley Country Club outside Philadelphia). Perhaps surprisingly, one area of airline service he doesn't criticize is food. “I've enjoyed 95 percent of the meals I've had [on airplanes],” he says. “I don't know what the big deal has always been with airline food. I call it the late-night standup comic syndrome — it's easy to bash.”
Mitchell has a genuine desire to help people and effect change; he's comfortable in front of an audience and with the media; he's willing (even happy) to condense huge amounts of fact and opinion into clearheaded analyses of complex issues. Considering all that, it's no surprise that his early career goals included running for office. It's an ambition that may still be realized.
His approach can be summed up this way: Speak softly and take the high road. “It's never been about bitching and whining,” he says. “You have to assume that if you were in [a major airline CEO's] shoes you couldn't do any better, and you might do a whole lot worse. Assume they're good people trying to do the best in a bad situation.” Nevertheless, his message to the airlines remains: “At the end of the day, if you have contempt for your customer, it's not good for you or for your industry.”
Quick Hit for Airline News
Kevin Mitchell launched the Business Travel Coalition Web site (www.btcweb.biz) in June 2001. Today, his Travelogue page, which provides links to airline- or business travel — related articles he selects every morning, averages 31,000 hits a day from 65 countries. Mitchell's testimony in front of House and Senate committees and other decision-makers, along with BTC survey results and other commentaries, are searchable at the site.
Headline of the Year: JetBlue's 100-Seaters
Low-fare carriers have one big advantage over the hub-and-spoke carriers: Their operations are smaller and more streamlined, so their cost structures are lower. Consequently, they can set lower airfares and still be profitable.
The majors have one big advantage over the low-fare carriers: The spokes of their hub-and-spoke systems can reach far more potential passengers. For 60 percent to 70 percent of the country, a major carrier is the only option.
Now comes JetBlue to trump that advantage with its deal to be the launch customer for the 100-seat Embraer 190 jet. (As the launch customer, JetBlue presumably got a discount on the big purchase.) These smaller jets will let JetBlue start profitably flying routes with fewer passengers, invading some of that majors-only territory and bringing fares down. JetBlue has ordered 100 of the jets; the first ones start flying in 2005.
The number of possible routes for JetBlue triples with the smaller jets, since the minimum number of passengers per day needed for profitability is decreased. “This is huge,” says BTC's Kevin Mitchell. “This will be the biggest headline of the year. I cannot see Southwest standing on the sidelines as JetBlue corners these numerous smaller markets.” In fact, in July USA Today reported that Southwest would add 17 jets to its fleet this year and a total of 119 over the next four years. Also not standing by is AirTran: It recently bought 50 Boeing 737s, with options to buy an additional 50 jets.
Swiss Skies: Purpose-Built Air Travel
While advocacy with BTC remains his focus, Kevin Mitchell has signed on to market a new air travel service — Swiss Skies, in partnership with Atlanta-based World Airways, will start out flying one route: Washington, D.C., to Kabul, Afghanistan, with a stop in Geneva.
The big benefit to passengers is a quicker trip: The Swiss Skies schedule turns a 35-hour, three-plane ordeal (barring delays that could strand you in Delhi for two days) into 18 hours with no change of planes. World Airways, with a 55-year history of flying into challenging locales, will provide the service with an emphasis on security. “Everyone is vetted who gets on that plane for the first time,” Mitchell explains. World Airways planes will remain in a secured area at the Kabul airport.
The target customers are private-sector contractors, government officials, and international organizations working on reconstruction efforts in Afghanistan. “In principle, Swiss Skies will be developing the market for later competitors,” Mitchell explains. “The assumption is that within three years, the marketplace will normalize, demand will increase, competition will come in, and we won't be competitive anymore.” But Swiss Skies has other destinations in mind. “If this model works, the list [of potential routes] is long and growing,” Mitchell notes. Anticipating that, World Airways has applied on behalf of Swiss Skies for permission to fly into Baghdad. Subject to regulatory approvals, the first flight to Kabul takes off this month.