Tour operators meeting demand with ‘risk air’

By Michelle Baran
The heyday of packagers providing charter flights to Mexico and Caribbean appears to be in the rearview mirror, as operators have shifted much of their business from charters to scheduled service, but it’s still a high-stakes business for operators such as Apple Vacations and Funjet Vacations, who are increasingly taking inventory risk on scheduled flights.

Operators use the term “risk air” to refer to contracts with airlines to support specific routes by “buying” a predetermined number of seats or percentage of the capacity.

Unlike some kinds of blocked-space arrangements, Funjet noted that it is “financially responsible” for the seats and cannot release them back to the airline.

Apple has 20,000 additional risk seats (that risk blocks on scheduled service and charters) in winter 2013, with its expanded U.S. gateways and new routes to Mexico and the Caribbean than it did in 2010 when it was exclusively using USA3000 for any nonscheduled service, according to Mark Noennig, vice president and general manager of Apple Vacations.

Combined with its charter programs, the move will add three new source markets to its U.S.-Mexico mix for 2013: Austin, Texas, and Des Moines, Iowa (both for Cancun) and Kansas City (for Cancun, Los Cabos and Puerto Vallarta).

“Some of the bigger cities are getting new destinations; some of these smaller cities, it’s just about adding nonstop flights,” Noennig said. “Internally, we do not differentiate between a risk block on a scheduled flight and a full plane of risk seats. Risk is risk. Apple Vacations has invested money in these seats, and we market them equally.”

Very few companies are still in the charter and risk-air business (MLT Vacations pulled the cord on the charter flight component of its Worry-Free Vacations brand in 2010), but Apple and Funjet say that despite the inherent risk, the demand and consequently the opportunity are still there.

Funjet has not yet finalized its summer and fall flying program for 2013, but the company expects it will increase its combined risk and charter capacity by between 15% and 20% compared with 2012. Funjet is adding new routes and is not discontinuing any of its existing risk or charter routes.

Jacki Marks, vice president of product, pricing and groups for Funjet, said risk-air programs enable commercial carriers to reduce their exposure on new routes. “A lot of the scheduled airlines would not want to go into [a new] market on their own,” she said.

For instance, for 2013, Funjet is adding daily nonstop service from Denver to Cancun for most of the year through a risk-air agreement with AirTran. Funjet owns between 30% and 60% of the seats on all those flights. It is also taking risk seats on between three and four flights per week between San Antonio and Cancun during the peak season.

“Having a nonstop advantage is a great way of providing a competitive selling point against airlines,” Marks said.

The arrangement brings other advantages to the operator, as well. With charters, an operator has to charter an entire aircraft or split the plane with another packager, but on scheduled service, operators can negotiate for more manageable and flexible blocks of seats.

Also, charter contracts involve the red tape of the Transportation Department’s bond and escrow rules, which do not apply to negotiated deals with scheduled carriers.

“If we have a block of seats on a scheduled flight, Apple passengers in that block will be covered by the scheduled airline’s rules and contract of carriage for the air portion,” Noennig said.

With risk seats, the passengers are governed by the airline’s contract of carriage, explained Marks.

Even so, charters have not gone away.

For winter 2013 Funjet will have one charter flight a day from Boston to Cancun and from Boston to Punta Cana, as well as from Kansas to Cancun two days a week.

Apple and Funjet partner with airlines that include Sun Country, AirTran, Aeromexico, Virgin America, Frontier and Miami Air on their charter and risk-air programs.

Whether the commitments are for scheduled or charter seats, an operator’s ability to fill the seats depends on a combination of strategic planning and managing risk, said Marks.

Funjet analyzes data released by OAG, which processes and distributes flight schedule data, to get a sense of where the demand gaps are in the market. The company also communicates with its hotel and ground suppliers to get a sense of demand on the ground in the destination.

“We have a team of people managing and watching,” Marks said. She also said that the added commission on the charter and risk flights is a selling point with travel agents.

“It’s a great thing for us, because it gives [us] product to sell,” said John Werner, president and COO of Oakbrook Terrace, Ill.-based Mast Travel Network, noting there never seems to be enough scheduled seats from the Midwest to Cancun.

He said from an experience and service point of view, charters and risk flights offer consistency in the product and usually have fairly good flight times.

“You know what you’re getting, there’s a brand consistency there,” Werner said.

To deal with flight changes or complications, Apple said it has representatives in place at the departure airports and uses destination management company Amstar in the destinations to assist travelers.

Follow Michelle Baran on Twitter @mbtravelweekly. 
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