Beginning today, American Airlines’ frequent fliers will be able to book one-way award flights – for half the miles required to book a round-trip ticket.

The change gives the more than 60 million AAdvantage program members flexible booking options not previously available to them nor available now to members of frequent-flier programs run by big rival airlines.

The move by the USA’s second-biggest airline was greeted gladly by travel analysts familiar with fliers’ frustrations about the inflexibility of many awards programs.

The change lets AAdvantage members take a one-way trip for 12,500 points, half the 25,000 needed for a free round trip.

American says its aim is to enhance the appeal of AAdvantage, which the airline has long believed helps sell more tickets, especially to high-mileage business travelers who are willing to pay above-average fares.

Several small and discount carriers allow their frequent fliers to turn in points for one-way trips. But American is the first of the USA’s big conventional network carriers to allow it.

Called One-Way Flex Awards, the change lets AAdvantage members:

— Fly one way on an award ticket and return by another means, including a purchased one-way ticket.

— Book a trip to several cities on points. Previously, AAdvantage required round-trip travel between two cities.

— Book an award trip in coach in one direction and a premium-class seat in the other.

— Split an award trip between American and one of its 20 AAdvantage program partner airlines. Previously, awards trips had to be completed entirely on American or entirely on one of its partners.

— Travel in one direction on an award ticket at “off-peak” times and the other on a “peak” award ticket. Frequent fliers long have been frustrated by the difficulty of finding available seats both ways within “off-peak” periods, which require fewer mileage points.

Tim Winship at FrequentFlier.com calls the changes “a step forward for both frequent-flier programs and the people who participate in them.”

Henry Harteveldt, Forrester Research’s travel analyst, says the change is an “out-of-the-park winner, very customer-friendly. It’s very sensitive to the times.”

Analysts say they expect competitors to move quickly to match American.

But it may not be easy. Rob Friedman, president of American’s AAdvantage marketing programs division, says it took American more than a year to change software and data management systems to make it happen.

More than half of U.S. air travelers now prefer buying the cheapest available ticket, then paying fees for “extras” such as food and drink, preferred seating and checking bags.

According to a new survey that captures for the first time U.S. travelers’ sentiments about a la carte pricing, many consumers do dislike the concept. The survey, done for Amadeus North America, shows that 85 percent of air travelers don’t like having to pay extra for services that used to be included in their fare.

But a majority of travelers – 52 percent – now understand why airlines are moving to a la carte pricing, and do see some consumer value in it.

In fact, 53 percent say that when presented with a choice of buying an all-inclusive service or unbundled services, they would buy the lowest-price ticket available, then pay extra only for the services they value. Only 18 percent said they prefer buying a basic fare in which the fees for services are embedded.

Other survey results:

• 28 percent say they will pay above-average prices for noticeably better services; 40 percent say they won’t.

• 49 percent say checking a bag should stay part of the basic fare; 17 percent say pillows and blankets should; 15 percent say seat selection; and 14 percent say food and beverages.

The results were “a bit affirming to us, in that consumers feel that there are some services that they now pay for which really do add value to their travel experience,” says Robert Buckman, Amadeus North America’s director of airline distribution strategies. Amadeus is one of the three big computerized travel sales systems used by airlines and travel agents.

Airline managers view a la carte pricing as a way of growing revenue in an intensely price-competitive industry at a time they can’t push through fare increases fast enough to offset rising costs.

But “airlines walk a very narrow line in how they roll out ancillary services so that it does not seem to the consumer like nickel-and-diming, and more like a true value-add,” said Buckman.

In any case, the pricing approach is certain to continue expanding rapidly.

Jay Sorensen, president of IdeaWorks, a Wisconsin consulting firm, estimates that U.S. carriers generated $1.7 billion in ancillary revenue in 2007. But that amount should skyrocket as carriers put more fees in place for more services.

This summer, American became the first large U.S. carrier to charge for checking a first bag, and has been followed in that by all its large conventional airline competitors.

United officials expect to generate $700 million in additional revenue from fees in 2009. Before its acquisition two weeks ago by Delta, Northwest officials were expecting an extra $250 million to $300 million in revenue this year from checked-bag fees they only began charging in midyear.

More cuts in airline schedules may await travelers after the holidays amid early signs that the usual after-Christmas falloff in travel could be deeper than airline managers had expected.

With conventional fare sales and an overall 10 percent reduction in domestic flying capacity already in place for the December holidays, U.S. airlines aren’t worried that the sliding economy will produce the kind of bah-humbug Christmas season retailers fear.

But come Jan. 5, when all the family vacationers, New Year’s revelers and college football fans have gone home, and corporations’ austere 2009 travel budgets take effect, all bets are off.

Signs of weakening demand are visible:

— Continental Airlines last week sharply reduced its forecast for a key benchmark of revenue growth for November. It now expects a 4 percent to 6 percent increase from a year ago in revenue per seat per mile flown instead of growth in the “low to mid-teens.” Continental is the only U.S. airline that publishes such a forecast, but history has shown it to be a reliable gauge of industry trends.

— A Southwest Airlines official says Continental’s outlook conforms with her airline’s. Tammy Romo, the airline’s vice president of financial planning, says trends have worsened in the month since Southwest announced a 5 percent cutback in January flying capacity — a big reversal for an airline that’s grown steadily for 34 years.

“We have seen signs of weakness in our recent booking and revenue trends,” Romo says.

— American Express, one of the largest corporate travel agencies, forecast three weeks ago that 2009 coach fares typically paid by business travelers could range from down 3 percent to up 5 percent, depending on the length and severity of the U.S. economic downturn. Now it looks like the lower end of that forecast will prove most accurate because business travelers increasingly are seeking cheaper fares aimed mainly at leisure travelers, says AmEx spokeswoman Tracy Paurowski.

So how will airlines react?

In the past they turned to widespread price cutting. But this year’s fare and fee hikes, along with recent drops in fuel prices, put profits in sight in 2009.

During earnings conference calls with analysts and reporters last month, executives at several airlines hinted their bias is toward further capacity cuts if demand weakens more. Officials at Delta, now the world’s biggest carrier, have dropped the strongest such hints.

“Managing your capacity is critical to controlling your revenues,” spokeswoman Betsy Talton says.

Many travelers are fleeing airlines’ premium-seat sections as corporations and entrepreneurs react to higher fares and a stumbling economy, says one of the world’s biggest travel agencies in a report out today.

On international flights, the number of business-class tickets American Express sold dropped 2 percentage points in the second quarter, says Herve Sedky, vice president of global advisory services at American Express Business Travel.

Business-class tickets were 49 percent of the international tickets sold by American Express, down from 51 percent in the same period in 2007.

American Express’ quarterly AmEx Business Travel Monitor shows that in the second quarter of this year, 3 percent of the tickets sold for travel within North America were first-class tickets. That’s down from 4 percent in the second quarter last year.

Business travelers who paid the premium price for a first-class ticket on domestic flights in 2007 opted to save money — typically $400 to $800 — this year by traveling in coach.

The cost savings is much larger for travelers who buy coach fares, instead of first- or business-class fares, on international flights, Sedky says.

International first-class tickets typically cost $5,000 to $7,000 round trip, while international business-class tickets cost $3,000 to $5,000, depending on the route and length of flight.

Coach tickets on such routes typically cost $1,000 to $2,000, depending on flight length, and sometimes even less, he said.

“Companies aren’t putting an end to air travel,” Sedky says, but are asking how they can gain market share by making a trip.

Air travel price-tracker Bob Harrell at Harrell Associates says the question of whether higher fares will cut even more deeply into business travel demand will take center stage this fall.

Airlines have announced large capacity cuts, starting after Labor Day and deepening in October and November. Fewer seats would help airlines charge higher average fares.

“October is the single-biggest month of the year for business travel,” Harrell says. “It’s got 31 days, no major holidays, and it’s a busy month for business people trying to wrap up big sales deals for the end of the year. … I think business travelers will keep on flying, while trying to economize as much as they can, but we’re going into new territory.”

———

International fares rise 11 percent

Average international one-way airfares paid by American Express clients in the second quarter of each year:

2007 … $1,788

2008 … $1,980

Source: American Express

If you want to travel during the fall or winter holidays, consumer travel experts say you ought to be checking prices now.

“This is going to one of the most expensive holiday travel seasons ever,” warns Tom Parson at BestFares.com.

Nearly all U.S. airlines are making big cuts in their schedules this fall in response to record jet fuel prices. Airlines’ domestic flying will fall about 9 percent in November vs. a year ago, according to a USA TODAY analysis this week of schedule data from OAG-Official Airline Guide. More cuts are likely.

The airlines’ goal is to charge higher prices for their remaining seats.

“Not only are the airlines’ prices up, rental car prices are way up, too,” Parsons says. “And the hotels are going to want to make up for the business they’re not going to get this fall.”

Higher prices will be most evident in popular winter vacation spots such as Florida, Southern California, Las Vegas, Hawaii, the Caribbean and Mexico.

For example, the cheapest non-stop fare for travel between Dallas/Fort Worth airport and Cancun, Mexico, on Dec. 18 is $350 each way, excluding airport and airline fees. But when this year’s holiday travel season begins on Dec. 19, the DFW-Cancun fare rises to $377 each way, with only a tightly limited supply of seats at that price. On Dec. 26, the cheapest fare jumps to $550 each way, again with only a small number of seats available at that price.

On Sunday, Jan. 4, the peak day for return travel from warm-destination vacations, the Cancun-DFW fare rises yet again to $604 one way.

“They’ll be tweaking and tweaking these prices all fall,” Parsons says, and “they’ll take them way up” on the most popular days.

In years past, airlines could be counted on to offer big sales on holiday seats sometime during the fall – though not usually for peak holiday travel days such as the Tuesday and Wednesday before, and the Sunday after, Thanksgiving.

This year, with fewer seats available, and many fewer flights each day to some popular leisure destinations, waiting for that fare sale is a gamble. In smaller markets, where the flying cuts are deeper, a big fare sale is less likely.

Leading discounter “Southwest still has not done one single sale systemwide since before Memorial Day,” Parsons says. “That’s very unusual for them, and it tells you where the market’s headed.”

Southwest’s inaction so far also makes competitors reluctant to discount their holiday seats. They don’t want to sell seats unnecessarily cheaply, or to set aside a large percentage of seats at the lowest price levels, until they see Southwest’s pricing.

Steve Cosgrove, owner of Dynamic Travel, a high-end leisure travel agency in Southlake, Texas, says many travelers still will fly regardless of the price.

“For a lot of our clients, paying $50 or $100, or even $200 more for a plane ticket over what they paid last year is not an impediment, at least not for the Christmas-New Year’s vacation trips,” he says.

SWEETWATER, Texas — Get ready, America. T. Boone Pickens is coming to your living room.

The legendary Texas oil man, corporate raider, shareholder-rights crusader, philanthropist and deep-pocketed moneyman for conservative politicians and causes, wants to drive the USA’s political and economic agenda.

“We’re paying $700 billion a year for foreign oil. It’s breaking us as a nation, and I want to elevate that question to the presidential debate, to make it the No. 1 issue of the campaign this year,” Pickens says.

Tuesday, Pickens will take the wraps off what he’s immodestly calling the Pickens Plan for cutting U.S. demand for foreign oil by more than a third in less than a decade. To promote it, Pickens is bankrolling what his aides say will be the biggest public policy ad campaign ever. They won’t say exactly how much he’ll spend, but Jay Rosser, Pickens’ ever-present public relations man, promises that Pickens’ face will be viewed on Americans’ televisions this fall almost as frequently as John McCain’s and Barack Obama’s.

Pickens complains that “neither presidential candidate is talking about solving the oil problem. So we’re going to make ‘em talk about it.

“Nixon said in 1970 that we were importing 20 percent of our oil and that by 1980 it would be 0 percent. That didn’t happen,” Pickens says. “It went to 42 percent in 1991 with the Gulf War. It’s just under 70 percent now. Where do you think we’re going to be in 10 years when our economy is busted and we’re importing 80 percent of our oil?”

Finding solutions to other major issues, including health care, are important, he concedes. But “if you don’t solve the energy problem, it’s going to break us before we even get to solving health care and some of these other important issues.” And it has to be done with the same sense of emergency that President Eisenhower had when he pushed the rapid development of the interstate highway system during the Cold War.

Of course, Pickens also has a particular solution in mind.

Wind. And natural gas.

Last week, Pickens loaded up his $60 million, top-of-the-line Gulfstream G550 corporate jet with reporters and a few associates from his Dallas-based BP Capital energy hedge fund and related companies and flew here, to illustrate just how big – and achievable – his vision is.

There’s not much to Sweetwater except for wild grasses, scraggy mesquite trees and rattlesnakes (Sweetwater hosts its famous Rattlesnake Roundup each spring). The gently rolling terrain and vegetation make it ideal for raising cattle, which is what its first settlers did in the 19th century, and what their descendants do today. A regional oil boom in the 1950s and 1960s poured money into the area’s economy, as have two oil revivals since: one in the 1980s and one now.

But the exciting new industry in town is wind energy. You can drive for 150 miles along Interstate 20 and never be out of sight of a giant wind turbine, claims Sweetwater Mayor Greg Wortham, who does double duty as executive director of the West Texas Wind Energy Consortium.

Were it a country all by itself, Nolan County, Texas, would rank sixth on the list of wind-energy-producing nations, says Wortham. Nolan County, where year-round wind conditions, the terrain, low land prices and small population make it an ideal location for wind farms, already produces more wind-generated electricity in a year than all of California. And the business is growing so fast that he struggles to define it by numbers. By year’s end, there’ll be more than 1,500 turbines in Nolan County, representing a $5 billion investment. In the multicounty Rolling Plains region, there are already 2,000 operating turbines.

Add those operating further west, the Permian Basin region around Midland and Odessa, and the entire area has more than 3,000 turbines operating, producing about 6,000 megawatts of electricity – roughly equal to the power produced by two to three nuclear power plants.

The growth potential is, well, electrifying.

New turbine towers are going up at the rate of three to four a day in the Sweetwater area, Wortham says. “It depends on the (Texas) Public Utility Commission, but the number could be 20,000 ultimately,” Wortham says.

Pickens, who over the past two years has become the USA’s biggest wind-power booster, is quick to note that “there could be lots of Sweetwaters out there,” especially in the nation’s midsection where winds are ideal for power generation (indeed, while Sweetwater is a windy place, plenty of locations farther north in the Great Plains are much windier). He is creating what would be the world’s biggest wind farm near 250 miles north of Sweetwater, near Pampa, northeast of Amarillo in the Texas Panhandle. It will be four times larger than the current title holder near here. So far, he has spent $2 billion on the project, including a record purchase of nearly 700 wind turbines this year from General Electric. He expects to begin generating electricity in 2011.

Though Pickens doesn’t own a single wind turbine in the Sweetwater area, Wortham was eager to play host to the oil baron and the reporters traveling with him. Sweetwater, he says, is proof that wind power has much more potential than its many skeptics believe.

“People hear about the 8-foot-tall wind turbines at Logan airport in Boston, or the five turbines at Atlantic City and think `interesting,’ ” Wortham says. “But they don’t see how we can get to the 300,000-megawatt-production level” established by the Bush administration as a national goal for 2030. “Once you come to Sweetwater, you see that it can be done, and be done pretty easily, not only here, but anywhere there are prime wind conditions. None of this existed seven years ago. Now, we produce enough electricity in this one county to power a large city, and we do it cheaply and cleanly.”

Getting lots more electricity with wind is only half of the Pickens Plan. Increasing wind-power production by itself won’t reduce U.S. dependence on foreign oil because most of that oil is consumed as gasoline. Wind energy can’t power cars.

The key, Pickens says, is that wind energy can be used as a substitute for natural gas now used to fuel electricity-generating plants. That, in turn, will make natural gas far more available for use as a transportation fuel. Pickens’ plan is to produce enough wind power within 10 years to divert 20 percent of the natural gas now used to fuel power plants for use in cars and trucks. That’s much more aggressive a growth plan for the development of wind energy than envisioned by the Depart of Energy, which doesn’t expect the USA to be getting 20 percent of its total energy needs from wind until at least 2030.

Pickens forsees as many as a third of the vehicles running on natural gas within only a few years. But powering vehicles with compressed or liquefied natural gas, CNG or LNG, has been Pickens’ pet project since the late 1980s. Natural gas, he argues, is cheaper than gasoline and considerably cleaner burning while delivering essentially the same amount of energy, making it an ideal alternative fuel. But the concept has been very slow to catch on.

Distribution is a major problem. CNG drivers can, like Pickens, install inexpensive equipment to fill up at their homes. But there’s no reliable nationwide network of filling stations that drivers could bank on being able to fill up at wherever they went. So, for the most part, CNG, or LNG, has remained limited to fleet operators, such as local bus companies or big-city police departments.

That must change, Pickens says, if the nation is to break its addiction to foreign oil. A network of CNG stations could be built along interstates and in major cities for a relatively small investment, he says. Some gasoline retailers have told him they would add CNG pumps to their stations once they’re certain there’ll be enough vehicles capable of running on natural gas to justify installation costs.

Washington, Pickens says, can solve that problem by providing modest economic incentives for fuel retailers to make those investments, for automakers to build CNG-powered cars and for individuals to convert their existing vehicles to CNG use. And it should continue to provide tax incentives for another 10 years to encourage wind energy’s rapid development as part of an overall plan to wean the nation from foreign oil, he says.

“It certainly would be cheaper than what they’re doing already for nuclear,” Pickens adds. But he’s also in favor of developing more nuclear energy, and every other form of alternative energy, all to reduce oil imports. “Try everything. Do everything. Nuclear. Biomass. Coal. Solar. You name it. I support them all,” he says. “But there’s only one energy source that can dramatically reduce the amount of oil we have to import each year, and that’s (natural) gas.”

Pickens is an outspoken believer in the so-called peak oil theory that holds that maximum world production has peaked at about 85 million barrels a day – vs. current demand of about 86 million barrels a day – and will never rise much above that even with lots of new drilling and production. As an investment strategy Pickens’ energy hedge fund is long in oil based on his belief that $140-a-barrel or higher oil is here to stay and that crude prices will remain high for the foreseable future. Yet, though it seems contrary to his investing strategy, Pickens believes natural gas as an alternative transportation fuel will reduce not only the amount spent on foreign imported oil but also the amount individuals spend on filling their cars, since CNG now sells for about half the price of an equivalent amount of gasoline.

Increased use of natural gas to power cars in the USA, he argues, also will mean increased competition and reduced demand for oil – and therefore lower prices, for gasoline. So “even people who continue driving gasoline-powered cars and trucks will benefit,” he says.

Critics could easily accuse Pickens of advocating a major new public policy initiative that will line his own pockets. He is, after all, a big player in both the wind power and natural gas businesses. But Pickens deflates that criticism, noting that while his hedge fund will earn money for its investors, earning more money personally is meaningless.

“I’m 80 years old and have $4 billion. I don’t need anymore money,” he adds.

He’s more concerned that his efforts to make reducing foreign oil dependency the No. 1 issue on the national agenda will be dismissed by the public and, therefore, by Washington. So he’s carefully steering his plan clear of partisan bickering.

He’s already enlisted an unlikely supporter: the Sierra Club. “I will be in the front row of the chorus cheering” on Pickens, says Carl Pope, executive director, who flew with Pickens to Sweetwater.

Pope sees wind and solar energy as inexpensive sources of power that, along with other non-carbon forms, can be pooled to greatly reduce the need for oil-fired electric generating plants.

“When it’s cloudy in Dallas and the wind’s not blowing in Sweetwater, but the sun’s blazing in the (Western) deserts, solar energy can run all those air conditioners in Dallas. When it’s windy in Sweetwater and cloudy in the desert, wind energy from Sweetwater can heat homes in Chicago.

“Mr. Pickens and I probably don’t see eye-to-eye on some other matters,” Pope concedes. “But he’s right on this one.”

Washington’s role, Pope said, should be in setting the goal and clearing roadblocks such as the patchwork of state, regional and federal regulations that block the creation of a true national grid that can shift electricity from anywhere in the country to anywhere that it’s needed.

Getting support from groups and people not ordinarily aligned with his conservative political views is important to Pickens. A lifelong Republican, he’ll vote for McCain. But he’s not involved with McCain’s campaign, largely to keep his plan from being dismissed as mere campaign rhetoric.

“This has to be a bipartisan effort,” says the man who four years ago offered $1 million to anyone who could disprove the charges made against Democrat nomine Sen. John Kerry by the Swift Boat Veterans for Truth.

“This is not about Republicans vs. Democrats,” Pickens says. “This is about saving our country from the ruination of spending $700 billion a year on oil imports. Ninety days after the oil hits our shores, it’s all burned up, and we’ve got nothing to show for it. But they (foreign oil producers) still have our money. It’s killing our economy.”

Published airline schedules for October show about a third of the United States’ 100 busiest airports will lose at least 10 percent of their domestic air service compared with a year ago.

That will be only a foretaste of the broader and deeper cuts in the months to come if oil prices stay at record levels.

For example, the United States’ three largest carriers – American, United and Delta – have announced fall domestic capacity cuts in the 10 percent to 14 percent range, but only parts of those reductions will be in place by early October.

Those airlines and others have made it clear that more service cutbacks and job losses are ahead this year and in 2009.

Although smaller markets are seeing the biggest air service reductions in percentage terms, large airports in some popular business destinations also are scheduled for significant reductions, according to USA TODAY’s latest analysis of published schedule data from OAG-Official Airline Guide. The analysis is based on changes in total seats on daily domestic departures.

Among the airports losing 10 percent or more of their seats in October vs. a year ago: Cincinnati, a Delta hub; Houston’s Bush Intercontinental Airport, a Continental hub; Cleveland, another Continental hub; Pittsburgh; and Phoenix, a US Airways hub.

Even some megahubs will be hit hard by the cutbacks, though in percentage terms, the reductions don’t register as big.

American, for instance, plans to strip out 28 mainline flights at Chicago O’Hare in the fourth quarter. Its American Eagle affiliate will cut 34 flights there.

Vaughn Cordle, chief analyst at AirlineForecasts, says that average fares need to rise at least 20 percent if the airlines are to cover their higher costs. But higher fares will reduce demand, requiring about 15 percent to 20 percent less capacity, he says.

Other big carriers have yet to detail their service cuts, but have tipped their hands. United plans to park 100 jets by the end of 2009. It will lay off 950 pilots and cut the jobs of at least 1,100 other workers. More than 4,000 Delta workers have accepted incentives to retire early or leave voluntarily this year. Continental plans to cut 3,000 jobs this fall.

Southwest, the industry’s top discounter, is the only one still planning a modest year-over-year capacity increase.

By Dan Reed, Barbara Hansen

There aren’t any 100 percent effective ways to avoid paying today’s sharply higher airfares, but old tactics largely abandoned in the post-9/11 era of low fares are making a comeback.

Last weekend, six of the nation’s biggest airlines added up to $60 to domestic round trips to help offset soaring fuel prices. On flights of 1,500 or more miles in markets with no low-fare carrier competition, prices are up at least $340 round trip just this year, according to travel pricing guru Tom Parsons at BestFares.com.

Even discount carriers, which have not participated in most of the past 13 big fare increases, are raising prices. AirTran added $30 to the round-trip price of its coach fares and $50 to its business-class fares over the weekend. In response, travelers are dusting off their money-saving playbooks.

Using alternative airports remains the best play, Parsons and other experts say.

Right now, a family of four flying from Cleveland to Key West would pay about $4,390 round trip. But by flying to Fort Lauderdale, an airport where there’s lots of low-fare competition, the same family could save $3,600 on their tickets. More than enough for a week’s SUV rental and gas to the Keys, about 175 miles away. “Even if you’re a business traveler, saving money is important, so you should consider an alternate airport,” says Parsons.

His site and others let fliers check fares at alternative airports.

Leisure travelers have more money-saving tricks at their disposal because they tend to be more flexible about their travel dates and arrangements. But that doesn’t mean business travelers are without any money-saving tools.

“A lot of these (tactics) have been used in the past but in recent years, really have not been in use,” says Carol Ann Salcito, president of Management Alternatives, a Norwalk, Conn.-based consulting firm for business travel costs.

“We’re really getting back to the basics of corporate travel cost control,” she says. ” We are advising corporate travel managers and corporate travelers to really make sure that the travel they’re thinking about is necessary.”

Experts’ top tips for business travelers and travel managers:

• Consider a bundled package of air, hotel and car accommodations. In many cases, package deal prices haven’t kept up with the pace of air-fare increases.

• Renegotiate corporate discount deals to soften the price impact of any escalators in the contracts.

• Update corporate travelers weekly about changes in fares and about what fees airlines and other travel service providers are charging, and offer advice on avoiding such charges.

• Plan ahead to qualify for advance-purchase discount fares. Airlines again are requiring Saturday-night stays on many such tickets. Not all business travelers will accept them. Some will see a chance to earn points with the boss while scoring a weekend getaway at the company’s expense. Entrepreneurs and small firms’ travelers may be more willing to accept Saturday-night stays.

• Rethink group travel. “How many of your people really need to make the trip?” Salcito asks.

• Work with a travel agency that pools the travel of small businesses to negotiate volume discounts otherwise available only to big corporations.

Delta Air Lines and Northwest Airlines on Monday night announced plans to merge their vast domestic and international networks, creating the world’s largest airline.

The proposed merger would be the largest U.S. airline deal ever, creating a global giant with more than 800 jets, 6,400 daily flights and nearly $32 billion in annual revenue. The carriers estimate the value of the new company at $17.7 billion dollars, far above their current market value.

The proposal could also be a catalyst for further consolidation among the big airlines at a time when the industry is threatened by steep losses from high fuel prices and a weakening economy.

If the merger closes, the new airline will be named Delta and headquartered in Atlanta, where Delta is based. Delta CEO Richard Anderson will be its CEO.

“Delta and Northwest are a perfect fit,” Anderson said Monday. He said the proposal “combines end-to-end networks that open a world of opportunities for our customers and employees.”

Under the plan, shareholders in Delta and Northwest would exchange their shares for stock in the merged company. Northwest shareholders would get 1.25 shares in the new Delta for each Northwest share.

The merger needs the approval of the Department of Justice, which will determine whether it violates antitrust laws. That review will take months.

The deal would join two big airlines with complementary route networks. Delta is the leading U.S. airline in the trans-Atlantic market and has strong domestic routes, especially in the Northeast, South and West. Northwest — once known as Northwest Orient — has been one of the leading U.S.-Asia carriers for more than half a century, and it’s a formidable domestic presence in the upper Midwest. The new Delta would have major hubs in Atlanta, Detroit, Minneapolis/St. Paul, New York, Amsterdam and Tokyo.

The airlines’ announcement drew immediate opposition from Northwest’s pilots because it does not guarantee them immediate benefits if the deal closes. Delta reached an agreement with its pilot union’s leadership that will give pilots a 3.5 percent stake in the combined airline and other benefits, while giving management the flexibility to boost revenue.

The merger also faces opposition from some powerful members of Congress and other labor groups.

However, executives at both carriers felt pressured to proceed. Jet fuel prices have risen more than 60 percent in a year.

Since Christmas, five small airlines have shut down. Last week, Denver-based Frontier Airlines sought Chapter 11 bankruptcy protection.

Analysts predict Delta and Northwest will post first-quarter losses.

———

Merger at a glance
Terms of the proposed merger between Delta Air Lines and Northwest Airlines:

— All-stock deal. Northwest shareholders receive 1.25 new Delta shares for each Northwest share.

— World headquarters would be in Atlanta, and all current hubs would be maintained.

— Delta pilots would get 3.5 percent equity in the new company, and non-pilot employees of both companies would receive 4 percent equity.

— Deal is expected to close later this year if necessary approvals are obtained.

By Dan Reed, Marilyn Adams

TEMPE – Their marriage was billed as the bold deal that would pave the way for the next – and perhaps last — round of airline consolidation.

Thirty months after near-bankrupt America West acquired the larger but twice-bankrupt US Airways, saving it from almost certain liquidation, the merged company is at best only a qualified success. If anything, it has illuminated once again just why there have been so few successful mergers in the airline business.

The merged carrier, named US Airways but led by America West’s management, had the second-best operating profit margin among all U.S. carriers last year and the best margin over the last two-year period. But widespread flight delays, a botched integration of the two airlines’ reservations systems, a steep decline in service quality and plunging worker morale combined to alienate customers and employees alike. Those problems limited what could have been an even better financial performance and have contributed to a nearly 80 percent stock price drop since its post-merger high of $62.95 in November 2006.

Now, $100-a-barrel oil, the slowing domestic economy, a weak position in the profitable international market and labor costs that are certain to rise significantly all threaten to unwind the financial turnaround since the September 2005 merger.

To complicate matters further, the carrier’s employees — most notably, its pilots — are seriously at odds with not only management but each other. Pilots from the two constituent airlines that formed the new US Airways can’t seem to agree on anything except that they dislike and distrust management even more than they dislike and distrust each other.

The dissension among US Airways’ pilots is teaching a cautionary lesson about the risks of consolidation. It’s cited as the reason that a similar dispute between the pilots unions of Delta and Northwest has prevented managements of those airlines from announcing their own much-discussed merger deal.

Nevertheless, CEO Doug Parker, who as chairman of America West was the driving force in the merger, enthusiastically defends the deal. Even knowing all that he knows now about the problems the merged US Airways has gone through and expects to face in the months ahead, he’d do it again.

“Absolutely. In a heartbeat,” the raspy-voiced Parker says before launching into a good-natured rant touting the deal’s positives.

“We saved at least 30,000 jobs,” Parker says at the conclusion of his well-practiced rant. “We created an airline that now is nationally viable as a stand-alone and is providing service to lots of communities that otherwise wouldn’t have any service. I really do feel good about doing all those things.”

A rosy plan
When Parker and his management team at America West were promoting their merger proposal in 2005, they promised to generate an extra $600 million a year in operating profit. They planned to do that through cost savings and additional revenue that would come from offering more non-stop flights and better connecting service than either the West Coast-oriented America West or the old, East Coast-centric US Airways had before.

The merged carrier has exceeded that goal already, he says, in large part by reducing capacity about 15 percent through the elimination of duplicate flights, shutting down its underperforming hub in Pittsburgh (US Airways’ original hometown) and better matching aircraft size and daily flight frequencies with actual passenger demand. As a result, the airline earned $427 million last year on $11.7 billion in revenue. Though both of its predecessors were perpetually cash poor, the new US Airways now has $3 billion in cash.

But the merged US Airways has quietly benefited from labor costs that have remained artificially low while the unions representing mechanics, bag handlers, flight attendants and pilots from both airlines have battled over how to integrate their seniority lists. Until that’s resolved, new contracts with higher pay rates and improved benefits can’t be put into place.

“It’s not a matter of if their labor costs will go up,” says Michael Derchin, a veteran airline analyst at FTN Midwest Securities in New York, “but how much and when.”

But Derchin defends the merger, based mostly on its financial results, which he calls “impressive.”

“A lot of things went right,” he says. “They did reduce a lot of capacity and rationalized their system. They focused their assets where they could maximize their returns. They also generated a lot of free cash and fixed their balance sheet.”

Still, even defenders of the America West-US Airways merger see the problems that the merger didn’t solve, exacerbated or created.

Derchin says management at the new US Airways failed to recognize how hard it would be to merge the two carriers’ reservations systems and other technologies for tracking data on everything from market-by-market demand trends to spare parts for Airbuses. The resulting meltdown of airport and customer service operations peaked last March when only about 55 percent of US Airways’ flights arrived within 15 minutes of the scheduled time.

Nor did the former America West managers really understand, Derchin says, just what bad shape the old US Airways’ fleet was in; how congested, antiquated, understaffed and poorly run the old US Airways hub at Philadelphia was; or how much the merged carrier’s long-term success depended on resolving those problems.

Parker concedes that management “screwed up” the switchover to a single reservations system, which created a cascading number of customer service and labor problems. Management also underestimated how difficult it would be to solve some of the lingering problems brought into the corporate marriage by the old US Airways, which had suffered for years from underinvestment, sloppy operations and poor morale, he says. Those managerial missteps contributed mightily to US Airways’ tumbling service quality in 2007. That, in turn, turned off US Airways’ best customers, many of whom now complain loudly.

Last year, nearly a third of US Airways’ flights arrived late by the Transportation Department’s standards. Only two regional carriers scored worse among the 20 tracked by the government. In the first and second quarters of 2007, US Airways finished last, with more than 35 percent of its flights arriving late.

It also finished last in both 2006 and 2007 among the nation’s seven biggest carriers in the number of reports of mishandled bags per 1,000 passengers and last in both years in the number of complaints filed per 100,000 passengers boarded.

Troubles in Philly
Brian Shott, a plant project engineer from Hazelton, Pa., and a platinum-level member of US Airways’ Dividend Miles frequent-flier program, says the “service aboard the aircraft is embarrassing. The price paid for the ticket does not reflect the service rendered.”

Dale Emerson, a consultant from Lutz, Fla., whose 200,000 miles a year on US Airways qualifies him for Chairman’s Preferred status in the Dividend Miles program, says he has seen improvements in service in many cities the carrier serves, but the US Airways hub at “Philadelphia continues to be a major problem.” Five times in the past 12 months, his bags have gotten lost there.

Similarly, Norman Ross, a gold-level frequent flier from Frederick, Md., says service consistency is lacking, especially in Philadelphia. “For example, I have flown into both Bar Harbor, Maine, and Hagerstown, Md., and have been very impressed and pleased with the caring service I have received. But I must admit, I try to avoid going to Philadelphia since the level of service I experience at that airport is about the worst of any location, or carrier.”

Airline analyst and consultant Michael Boyd, head of the Boyd Group in Evergreen, Colo., is more biting in his criticism. “How many people have you heard say, ‘Gee, I really love flying US Airways’? You don’t hear that because the service mostly is just awful, and even when it’s not awful, it’s confused. It’s the airline version of Baghdad. Nobody knows who’s doing what.”

The 2006 death of America West’s longtime operations chief, Jeff McClelland, also set back the transition process, as did Parker’s decision not to hire a replacement.

Employees also grumbled that instead of focusing on melding the two carriers, Parker and President Scott Kirby, promoted from head of marketing after McClelland’s death, focused much of their attention in late 2006 and early 2007 on a bid to merge yet again, this time with Delta Air Lines, in Chapter 11 at the time.

Delta’s management, supported by its employees, at least some of its major creditors and some members of Congress, rebuffed US Airways’ $8 billion offer, arguing that Delta would be worth more on its own.

Parker says that’s in the past. US Airways now eagerly promotes the dramatic steps being taken to improve customer service, dress up planes, improve customer service and fix the problems at the Philadelphia hub.

This year’s budget includes $50 million for upgrading aircraft interiors. Public contact employees are getting new uniforms and more training. New equipment for handling bags and aircraft on the ground is being acquired. And a new internal campaign is being launched to help motivate employees to make theirs the “Airline of Choice” by delivering RCA — reliability, convenience and appearance — to passengers.

Last fall, Parker also brought in a new chief operating officer, Robert Isom, a former head of ground operations and airport customer service at Northwest Airlines. Isom hired two new executives from other airlines to manage the carrier’s East Coast division and its unruly Philadelphia hub. In fact, the carrier is adding so many new or relocated managers at Philadelphia that it has taken to calling it a “satellite headquarters.”

That new focus on operations seems to be having an impact. US Airways ranked first among the nation’s six big hub-and-spoke airlines in on-time performance in December and January and third overall among the nation’s 20 largest carriers by passenger traffic.

Isom projects another strong showing in the February numbers when they come out next month.

“I’m very proud of the improved performance our people have been responsible for,” Isom says. “But the real trick is going to be sustaining it.”

Employees of merged airline are still miles apart

Improving labor relations could be the biggest challenge in completing the merger of America West and the old US Airways.

So far only four smaller work groups from the so-called East (old US Airways) and West (America West) halves of the merged airline have agreed on how to integrate their seniority lists. The mechanics, bag handlers, flight attendants and pilots are still divided, bitterly so in the case of the pilots.

The pilots’ fight is over seniority, which determines which planes they fly, their days off, their career earnings and their retirement pay. It also determines how many years it takes a pilot to reach the top-paying job as captain of an international-range Airbus A330, and how many years a pilot will remain in that plum job before retirement.

America West’s younger, less-senior pilots demand the right to advance quickly to the A330. Their reasoning: all of the so-called East pilots would be out of work had there been no merger.

Pilots from the old US Airways want to retain seniority rights to those wide-body jets’ captain’s seats. An arbitrator’s ruling last May satisfied neither side.

Jack Stephan, head of the East pilots’ branch of the Air Line Pilots Association, says accepting the arbitrator’s award means “hundreds of our pilots would never see the left (captain’s) seat of a wide-body plane, and some smaller number would never even make captain” at all.

Still, members of Stephan’s East pilots group felt betrayed by ALPA and formed the US Airline Pilots Association, with the aim of replacing ALPA. USAPA organizers got more than 3,000 of the carrier’s 4,600 pilots to sign cards calling for a representation election. This week ALPA national officials ousted the three elected officers of the union’s local at US Airways’ Philadelphia hub, accusing them of siding with USAPA. Results of the online voting will be known April 17.

John McIlvenna, head of the West pilots ALPA unit, warns that if management bows to pressure from the larger East pilots group and cuts a deal bypassing the arbitrator’s ruling, “It will make their labor problems here much, much worse than they already are.”

And if USAPA wins the representation election, he says, “It’ll be all-out war.”

Discount airline JetBlue, a faded star on Wall Street, has agreed to sell a nearly one-fifth stake in itself to German carrier Lufthansa.

The New York-based carrier, which offers flights from Tucson, will be getting $300 million in cash that will help offset some recent losses and put it in a better position to deal with expensive jet fuel. Passengers are unlikely to notice any changes, at least not soon.

“We view this as strictly a financial transaction,” JetBlue CEO Dave Barger said in a conference call about the investment.

The investment is the first by a European carrier in an established U.S. discounter, though Briton Richard Branson’s Virgin Group, parent of Virgin Atlantic, owns 23 percent of start-up discounter Virgin America. Dutch carrier KLM at one time owned part of Northwest Airlines.

For its money, Lufthansa will be getting 19 percent of JetBlue and the right to name one new member to the company’s board. It is paying $7.27 for each of the 42 million JetBlue shares to be issued. That’s a 16 percent premium over JetBlue’s closing price on Wednesday. In Thursday trading, shares shot up 14 percent to $7.15. JetBlue’s stock traded above $30 in late 2003.

The deal allows Lufthansa to leverage the euro’s strength against the dollar to buy cheaply into the U.S. airline business.

JetBlue began flying in early 2000 with the initial backing of financier George Soros and several private-equity funds. In its early years, its share price soared as investors responded heartily to the low-cost carrier’s near-instant profitability, its live in-flight TV and rapid growth. But the carrier’s sagging financial performance since 2003, and an embarrassing string of operational breakdowns that included a disruption of its operations at New York John F. Kennedy airport in February, forced it to slow its growth and replace much of its senior management.

“I wouldn’t say JetBlue absolutely needs that extra cash,” said Calyon Securities analyst Ray Neidl. “But with the potential for $100-a-barrel oil out there, it’s nice to have.” Neidl said he expects the JetBlue-Lufthansa relationship eventually to grow into a marketing partnership that would feed JetBlue’s domestic passengers to Lufthansa’s flights to Europe.

Current U.S. law limits Lufthansa’s influence by capping ownership of a U.S. carrier by foreigners at less than half and by imposing separate controls on its ability to dictate management decisions.

JetBlue earned a $23 million profit in the July-September period. But it lost $1 million in the first six months of 2007. That loss followed a loss of $1 million in 2006.

FORT WORTH, Texas – AMR Corp. will divest its American Eagle regional airline unit to better focus on running American Airlines, the world’s largest carrier, and to calm restless shareholders.

The decision to offload American Eagle sometime in 2008, announced Wednesday afternoon, follows a strategic review of assets that AMR undertook partly in response to pressure from large shareholders seeking a better and quicker return. Divestiture could come through an outright sale or spinoff of a separate stock.

In September, FL Group, an Icelandic hedge fund that owned 9 percent of AMR’s stock, began publicly pushing it to divest its AAdvantage frequent flier program, American Eagle or other noncore assets including its American Beacon Advisors money management unit. AMR management reacted coolly, noting that such asset sales could have a long-term negative effect on the company’s primary business, American.

Other hedge funds and investors also began pressing AMR for such divestitures. Over the last year the possibility of big airlines unloading noncore assets has become a major theme among nontraditional airline investors like hedge funds.

Like most carriers’ shares, AMR stock this year has performed poorly. Even after a 6.9 percent gain Wednesday to a closing price of $21.98, AMR shares are still trading near their 52-week low of $19 set only last week. They’re nearly 50 percent off their January peak.

Tom Horton, AMR’s CFO, said in an interview that the company has never been opposed to divesting noncore units. “It’s something we’ve been working on for a while now and we now think it makes sense,” he said of the pending divestiture.

Horton would not discuss AMR’s thinking on the possible offloading of its frequent flier program or its money management unit. “We’re still conducting our review and thinking,” he said.

Horton said it’s premature to say what AMR would do with revenue from an American Eagle sale, but debt reduction has been priority.

———

American Eagle Airlines: At a glance

• Headquarters: Fort Worth, Texas

• Employees: More than 13,000

• First flight: Nov. 1, 1984

• Daily flights: More than 1,800

• Fleet: 305 aircraft

• Destinations served: 159

• Longest route: Los Angeles to Bentonville, Ark., 1,371 miles

Source: AMR

Air travelers face higher fares and reduced flight options as carriers grapple with persistently high fuel costs.

Oil prices dropped slightly on Wednesday, but continued their flirtation with $100 a barrel. Oil closed Wednesday at $97.29.

U.S. airlines, barely out of the their deep post-9/11 slump, have been dealing with unexpectedly high oil prices since Labor Day by pushing up fares and trimming flights.

Average business fares on the nation’s top 280 routes have jumped 8 percent from a year ago, according to price tracker Harrell Associates. And leisure fare prices on those same prime routes are up 26 percent from a year ago. This week, Arizona-based US Airways imposed a $5 across-the-board fare increase on every ticket sold.

Whether that price increase sticks depends on other competitors matching it. But in general, fare increases will continue, because “people keep wanting to fly, even at these much higher prices,” says analyst Terry Trippler of travel Web site TerryTrippler.com.

Ironically, says Trippler, high oil prices are at least partially responsible for the continued strong demand for airline seats.

“With gasoline prices rising, there’re lots more people who decide they’re not going to gas up the Navigator and drive to New York to visit Granny, and decide to go by air,” he says.

Harrell Associates’ Bob Harrell agrees that fares “definitely are going to keep on going up.” At today’s high energy prices, he says, consumers are more accepting of fare increases.

“Five years ago, not two out of 50 people could tell you within 50 percent what the price of a barrel of oil was,” Harrell says. “Today, everybody knows it’s in the $90s. And that plays in the airlines’ favor.”

Through the first 10 months of this year, U.S. airlines have reacted to rising fuel prices by cutting domestic capacity more than 2 percent from the same period in 2006, Harrell said.

The industry defines capacity as the total number of miles it flies available airline seats. When airlines cut capacity, they typically eliminate routes, reduce the frequency of flights or use smaller aircraft. That, in turn, lowers travelers’ options.

Currently, U.S. carriers are paying about $2.70 a gallon, excluding taxes, for each gallon of jet fuel bought on the spot market. But at that price, JPMorgan airline analyst Jamie Baker says the $7 billion pre-tax profit he expected the nation’s big traditional network carriers to earn in 2008 would be wiped out. Baker’s forecast assumed an average price of $68 a barrel next year.

Baker says high fuel prices are likely to continue. With more fare increases and capacity cuts, he says airlines may salvage a 2008 profit of about $3.6 billion.sigAirlines/sig

U.S. airlines are feeling pressure from aggressive investors and a slowing economy to boost their sagging share prices and raise cash by selling or spinning off some assets, including their prized frequent flier programs.

FL Group, an Icelandic investment group that is the second-largest shareholder in AMR, parent of No. 1 American Airlines, is publicly urging the company to spin off its pioneering AAdvantage frequent flier program, which it estimates is worth about $6 billion on a stand-alone basis. AMR’s total market capitalization is only about $5.5 billion. A spin-off would involve distribution of new, separate stock to current AMR shareholders.

American spokesman Tim Smith confirmed receipt of the FL Group’s letter. He declined to comment on what actions the company’s board might take.

Meanwhile, the board of UAL, parent of No. 2 United, is considering the possible spin off or sale of assets including its Mileage Plus frequent flier plan and all or part of its aircraft maintenance division.

Jean Medina, a United spokeswoman, confirmed that her company’s board discussed “portfolio optimization” at its annual strategy meeting last week in San Francisco, including possible action on the frequent flier program. She declined to say what the airline will do or when.

Air Canada’s parent, ACE Holdings, spun off its Aeroplan frequent flier plan in 2005. Since then, Aeroplan’s market value has nearly doubled to about $4 billion.

Both American and United have been building up their cash reserves this year, and American also has been using some of its $2 billion in free cash flow to reduce debt. Other carriers, most notably discount king Southwest, also have been taking steps such as issuing new shares of stock to raise their cash reserves as a hedge against the next cyclical slowdown.

In the five years ended in 2005, U.S. carriers lost $42 billion, and most were caught with too little cash when that downturn began.

In a recent letter sent to AMR’s board, which was first reported in The Wall Street Journal, Hannes Smarason, CEO of the Reykjavik-based FL Group, urged American to spin off the AAdvantage program because it is the AMR business unit with the most unrecognized value.

FL Group began accumulating AMR stock last November and December, when share prices were much higher than now. Shares closed Friday at $22.29, or 46 percent below its 52-week high last January.

At one point last spring, it was AMR’s largest shareholder. At the time, it publicly urged American participate in consolidation, figuring that that would drive its share price higher.

But hopes of airline consolidation faded earlier this year after Delta Air Lines, then in Chapter 11 bankruptcy, turned back a hostile takeover bid from US Airways.

Northwest Airlines CEO Douglas Steenland on Monday said he favors an industry agreement to trim schedules at the nation’s most congested airports, but he warned that reducing flight delays that way would result in higher airfares.

In an interview, Steenland said an agreement among airlines to reduce flights in congested markets such as New York City, the Northeast and Chicago wouldn’t be popular with everyone. Reduced capacity could make seats to and from those cities harder to come by and more expensive.

But, he said, “If we do nothing, the problem (with delays) will simply continue to compound.”

Steenland, who has led the Eagan, Minn.-based carrier since 2004, reacted to a warning last week by departing Federal Aviation Administrator Marion Blakey. In her final speech as a top regulator, Blakey urged airlines to “take a step back on scheduling practices that are at times out of line with reality.”

She warned airline executives that if the industry doesn’t cut back voluntarily, “Don’t be surprised when the government steps in.”

The FAA is concerned about the airlines’ practice of packing more flight at major airports than can be safely handled even under ideal conditions. That practice is at least partly blamed for this year’s unprecedented numbers of flight delays.

The U.S. Bureau of Transportation Statistics reported 1.1 million flight delays in the first seven months of 2007, a record. That means nearly 3 out of every 10 flights through July arrived at least 15 minutes later than scheduled.

Steenland said an agreement to cut schedules at critical times at congested airports would “recognize the reality that some of our airports have reached their capacities.” Steenland sees no relief in the future through airport expansion.

“We’re not likely to see a lot more runway space or terminal space at lot of these airports, so congestion is going to be a long-term issue for this country,” he said.

For airlines to significantly roll back their schedules in some of the most popular markets, they need a grant of antitrust immunity to meet and agree on how many flights each would cut. That’s because airlines would be loath to unilaterally reduce service in key markets and risk losing critical market share to competitors who don’t do likewise. Airlines have been given antitrust immunity to discuss matters several times in the past. But none of the parties that would involve, including the FAA, have asked for an immunity grant.

Steenland says corporate jet operators also contribute to the congestion problem, and must be part of any solution.