First-Class Fares Come Down to Earth

A Note From the Editor in Chief: We're introducing a new section today called "The Good Life." One aspiration of being successful in any field, including investing and finance, is enjoying the finer things that life has to offer -- the ultimate vacation, a great new car, a truly fabulous bottle of wine, a lavish golf course -- at a price that won't break you.

With "The Good Life," we'll give you specific suggestions of the finer things to enjoy and the places to shop to get them. In our debut columns, Aaron Task checks out the delicious and tempting course offerings at the California Culinary Academy, and below, Eric Gillin reports on how to sit in first class without paying through the nose. One tip from me: When the flight attendant comes around with wine, grab the entire bottle of 98 Chateauneuf-du-Pape. It's fabulous.

As always, let us know what you think. Dave Morrow, Editor-in-Chief

There's a fire sale in first class.

When the smoke clears, business travelers won't ever have to pay through the nose to sit in the front of the plane -- and they'll get more bang for their buck, too.

Over the last two years, the rise of the Internet and the aftereffects of the World Trade Center attacks have contributed to a marked decline in business travel. Many teleconference instead of flying, and those who do fly choose cheaper, unrestricted tickets in lieu of thousand-dollar walk-up fares. As a result, airlines have dropped prices to encourage flyers to pay up for first class or stay loyal.

"The change we have seen has been structural, in a sense. Business travelers will not pay those high fares again," said Kevin Mitchell, chairman of the Business Travel Coalition, an advocacy group representing large purchasers of business travel. "The airline industry has finally joined virtually all the other industries in shifting from a supplier-driven business to a customer-driven one, because the customer has so many choices."

Many business travelers, especially frequent flyers, have a built-in bias against cheap seats after spending one too many red-eye flights crammed into a seat in the back of the plane, nursing a Coke and a bag of stale nuts. But you don't have to pay thousands of dollars to get a quality experience anymore -- the seats are bigger, the food is better and the little guys are winning the battle for quality.

In the Transportation Department's annual ranking of airline quality, three of the top four airlines were low-cost carriers.(See chart.) JetBlue ( JBLU) finished in the top slot, with just 0.31 complaints per 100,000 passengers. It's no secret why JetBlue's passengers are so quiet -- they're too busy reclining in leather seats, watching 24 channels of DirecTV and paying a pittance to do so. And it's not even first class, per se.

Competition is heating up between low-cost and legacy airlines, both of which are rushing to add flights to their schedules, hoping to entice customers to pick their low fares by ratcheting up the service levels. As low-cost carriers like Southwest Airlines ( LUV) add completely new markets and cross-country flights, older carriers like United Airlines, a unit of UAL ( UALAQ.OB), are increasing the frequency of flights, dropping prices to stay competitive and adding legroom.

Low-Cost, High Quality
Quality rankings show that the cheapest seats now offer the highest levels of service, with low-cost flyers atop the list
Rank 1993 2003
1. Southwest JetBlue
2. American Alaska Airlines
3. United Southwest
4. Delta America West
5. US Airways US Airways
6. Northwest Northwest
7. TWA Continental
8. America West AirTran
9. Continental United
Source: National Institute for Aviation Research, Wichita State University

The Death of $3,500 Fares

While these moves have lowered overall fare pricing, a pair of low-cost carriers -- AirTran ( AAI) and America West ( AWA) -- have revolutionized the way first-class tickets are priced, bringing upscale to the masses. Over the last two years, both companies have drastically reduced the price of a first-class ticket, which could run into the thousands of dollars, to just a few hundred.

On Feb. 17, America West launched "First Rate," its new first-class pricing initiative. Instead of paying more than $1,000 to fly first class from Miami to Las Vegas, people who buy the same flight on America West would pay $499 if they bought a week in advance and $699 at the last minute.

"First, we thought the pricing of first-class fares relative to our everyday low fares in coach was out of whack. Second, we sold very few first-class fares when prices were high," said Scott Kirby, executive vice president of marketing at America West, noting the company has sold twice as many first-class fares over the last six weeks. "And third, we wanted to pick up market share from other airlines."

In the months since America West announced the sale, first-class tickets have continued to plunge across the board, especially on transcontinental routes where low-cost carriers are adding flights. (Indeed, in April Continental Airlines ( CAL) followed America West's lead with a restricted first-class fare sale of its own.) Last year, the average price of a first-class ticket from New York to San Jose was $1,003, according to Harrell Associates, which tracks fares across the industry. This year, that same ticket was $203, 80% cheaper.

The decline has forced older carriers to play catch-up, either by dropping prices or using first-class upgrades as frequent-flyer perks. First-class tickets at United are 21% cheaper than last year, while Continental has dropped prices by 11%.

"On the New York to Los Angeles route, which America West started serving nonstop in October of last year, they charged $998 roundtrip, which is pretty good," said Tom Parsons, CEO of BestFares.com, an online travel agency. "Now American and Delta ( DAL) and Continental and all of those guys, they have a $998 first-class ticket, too."

You Get Way More Than You Pay For

But when you buy a cheap first-class ticket, are you getting a good experience?

Absolutely. First class is still first class. While the days of real silverware and fine china in first class are gone in this era of terrorism, the amenities and perks are still there -- they're just cheaper from here on out.

And with carriers like Northwest eliminating first-class cabins while JetBlue's coach product offers some first-class amenities and legroom, the lines have been blurring. Oftentimes, business (and even economy) class feels first class, too.

Like many other carriers, America West's first class has leather seats that are 50% larger than in coach, with six extra inches of legroom. And the carrier's first-class service includes a bevy of complimentary goodies.

Food in first class is free, but the offerings aren't the chintzy Brand X offerings flyers are used to. Travelers can opt for a breakfast box including brand-name products like Quaker breakfast bars and Nabisco Wheat Thins or wait to have a warm roast beef and Fontina cheese sandwich on a rustica roll for lunch.

The entertainment options are robust. America West offers an array of recent films on flights, including Barbershop 2 and Mona Lisa Smile, along with sitcoms like Friends and Frasier. For those not in the mood for television at high altitudes, America West has an inflight magazine library with nearly 30 titles.

Pay More, Complain More
Southwest Airlines receives one complaint from every million passengers it flies, a record, and much less than traditional carriers
Airline Passenger Complaints *
Southwest 0.14
JetBlue 0.31
Alaska 0.52
ATA 0.66
Delta 0.78
AirTran 0.83
United 0.83
America West 0.84
American 0.88
US Airways 0.90
Continental 0.95
Northwest 0.95
* Per 100,000 Source: Department of Transportation

And instead of loafing around the gate, ticket holders can wait for their flights in one of America West's lounges with priority boarding privileges. Not only are first-class patrons able to board the plane first, they also can make complimentary long-distance phone calls and photocopies. With ample dataports and outlets around, it's easy to work while waiting, away from the distractions at the crowded gate.

It's also easier to work while in the skies, too. Discount-carrier ATA ( ATAH) offers a business-class seat that's 21 inches wide, four inches more than the average, allowing laptop-wielding business-class passengers to work more easily.

The difference is not unlike the one seen at the local multiplex, where those old, cramped 18-inch seats are being replaced by cushy 21-, 22- and 23-inch stadium-style seats. The cost? Not what you'd expect. A flight from New York to Los Angeles is just $223 roundtrip on ATA's Web site.

"Usually, if you're six-foot-four, like I am, you can forget about getting any work done on a regional jet," said Mitchell, adding that first-class sections on the smaller planes are comfortable. "If I have to go to the Coast, it's important to me that I don't arrive feeling like a dirty dish towel. The extra legroom and extra amenities are important to me."

More from Personal Finance

When Is It 'Worth It' to Work With a Financial Advisor?

When Is It 'Worth It' to Work With a Financial Advisor?

Want to Retire Abroad? These Are the Friendliest Countries for Expats

Want to Retire Abroad? These Are the Friendliest Countries for Expats

How Small-Cap Stocks Can Protect Your Portfolio From a Trade War

How Small-Cap Stocks Can Protect Your Portfolio From a Trade War

Why Millennials Are Ditching Stocks for ETFs

Why Millennials Are Ditching Stocks for ETFs

Amazon Prime Day 2018: When Is It and What Should You Know?

Amazon Prime Day 2018: When Is It and What Should You Know?