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American Airlines and United Continental Try to Win Over Business Travelers

By Adam Levine-Weinberg – Dec 14, 2015 at 10:10AM

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Both airlines are trying to woo lucrative business travelers away from Delta Air Lines.

Delta Air Lines (DAL 2.02%), American Airlines (AAL 3.41%), and United Continental (UAL 2.57%) all have business models built around serving business travelers. But in the competition for lucrative corporate traffic, Delta has had a big advantage over its rivals in recent years.

Delta is the favorite airline of business travelers. Photo: The Motley Fool.

American Airlines and United Continental are trying to reverse that trend. They're adopting different tactics, though. American Airlines is looking to woo business travelers by offering more premium seats to improve passenger comfort. Meanwhile, United Continental is guaranteeing its operational reliability to attract and retain corporate customers.

Winning in the business travel market
In the past few years, Delta Air Lines has solidified its dominance in the corporate travel market. For example, it was voted as the best airline by readers of Business Travel News in 2011, 2012, and 2013. In the 2014 survey, not only did Delta win for a record fourth consecutive year, but it also won in every single one of the 10 categories measured.

At first glance, it might seem bizarre that business travelers like Delta so much. Its mainline planes are 17.1 years old on average, compared with an average of 13.5 years at United Airlines and 11.2 years at American Airlines. Delta also tends to pack more seats onto each plane than either American or United.

However, Delta has routinely outscored American and United in the annual Airline Quality Rating report. This measures performance on four important metrics: on-time percentage, the number of passengers involuntarily "bumped" from flights, the rate of mishandled baggage, and the number of official complaints filed with the DOT.

Last year, Delta again beat out both American Airlines and United Continental on all four metrics. In short, it is far more reliable than its peers at airline basics. Customers have been willing to pay for that superior performance. That's a big reason why Delta Air Lines has the highest profit margin among the three network carriers today.

Doubling down on comfort
American Airlines appears to be betting on superior passenger comfort to regain corporate travel share from Delta. It started down this road a couple of years ago by adopting a premium-heavy seat mix for the A321 planes it uses for transcontinental flights from New York to Los Angeles and San Francisco. Each of these planes has just 36 regular economy seats out of 102 total seats.

American Airlines is adding a premium economy section for international routes. Photo: American Airlines.

By contrast, Delta's transcontinental 757s are outfitted with 108 regular economy seats out of 168 total seats. Clearly, American is betting on getting a disproportionate amount of high-fare business traffic on these routes to make up for the lower number of seats on each plane.

Last week, American Airlines took another step down this road. The carrier announced that it will add a premium economy section on its international fleet beginning in late 2016.

This section will feature wider seats and more legroom than American's existing Main Cabin Extra seats, along with other complimentary amenities. But these seats will be priced a lot lower than the flat-bed seats that have become standard in business class for international routes.

This new premium economy section is targeted at travelers whose companies aren't willing to pay for business class tickets. By offering these fliers a more comfortable experience than what is available (outside of business class) on Delta and United, American hopes to gain loyal customers.

Guaranteeing performance
United Continental is targeting Delta more directly by highlighting improvements in its own operational reliability. United has recently begun offering corporate clients guarantees that it will be No. 1 or No. 2 in on-time performance next year among the three network carriers.

United Continental is offering corporate customers an on-time guarantee. Photo: The Motley Fool.

This followed a similar guarantee program Delta initiated a few months ago. There are some differences between the two programs -- e.g. Delta's program applies only to domestic mainline flights, while United's guarantee applies to all flights -- but the general concept is the same. If they don't meet the conditions of their guarantee programs, United and Delta will offer compensation of up to $250,000 to companies that are heavily affected by delays.

Of course, United doesn't need to beat Delta in on-time performance to avoid these payouts. It only needs to come in ahead of American Airlines. However, United -- which has posted strong gains in on-time performance in the past few months -- is clearly trying to challenge travelers' perceptions that it is unreliable relative to Delta.

American Airlines and United Continental are both making progress to become more competitive with Delta Air Lines in the fight for business travelers. However, unless Delta stumbles, American and United will have trouble overtaking it in customer appeal and profitability.

Adam Levine-Weinberg owns shares of United Continental Holdings, and is long January 2017 $40 calls on Delta Air Lines, and long January 2017 $30 calls on American Airlines Group. The Motley Fool is long January 2017 $35 calls on American Airlines Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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