Low fares offered by low-cost carriers have brought another round of disorder to the domestic First Class market — perhaps the greatest yet — and changed the way we have to evaluate premium airfares and loyalty programs like never before.

Discount player AirTran was among the first to attack the once sacred domestic First Class fare — traditionally a significant revenue source for the network carriers — by offering round-trip First Class fares in 30+ markets for under $600, which several carriers matched. In response to JetBlue’s non-stop transcontinental service, American slashed premium fares to keep business travelers from defecting. In Oct. 2003 self-proclaimed low-fare carrier America West started bypassing its hubs by inaugurating four new transcontinental routes (Los Angeles and San Francisco to Boston and New York) and cutting round-trip First Class fares to as low as $2,144, from $3,630. Every airline matched.

The Knock-Out Punch

At press time, First Class transcontinental fares on America West — matched by American, Delta and United — have declined to $499 each way (First Class on two-class aircraft; Biz Class on three-cabin, wide-body aircraft). That was an unthinkably low level only a few short months ago: on Oct. 13, 2003, when fares were $1,815 each way. Continental, Northwest and US Airways have yet to enter the fray.

Restrictions on these low fares are not rigid enough to keep business travelers out. While fares are non-refundable, credit can be applied toward a future flight, less $100. In other words, changing an itinerary costs $100. While at times Business and First Class seat availability can be scarce, the premium seat capacity on the major routes usually mean that these fares can be found.

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Free Elite Upgrade Privileges: Neutralized

These low premium fares will have an enormous impact on one of the biggest perks of elite status: free upgrades when booking full-fare economy, currently offered by Alaska, America West, Continental, Delta, Northwest, and US Airways. The perk is losing its advantage because free elite upgrades, confirmed at time of ticketing, apply only to full-coach fares, which cost much more than the $499 confirmed-at-ticketing First Class fare.

What’s worse, if you’re a frequent flyer with an airline that isn’t aggressively matching the latest low premium fares, like Continental, your free elite upgrades are only valid with fares that start at $1,128 each way — that’s 226% more than a premium seat on American, Delta and United — whether you’re an elite member or not.

That’s the cruel irony: Carriers offering ‘free upgrades’ to elites often are not competitive on the important fare levels. To add insult to injury, the availability of $499 seats can be better than it is for full-coach upgrade seats on Continental despite the $1,128 price for coach. Granted, Continental allows its elites to possibly obtain free upgrades with the purchase of any fare based on status level, one to five days before departure. But who wants to take chances when low-fare options abound?

New Considerations When Deciding on an Elite Program

The new world of airfares and its effect on elite perks expose a carrier’s true competitive nature: Continental often refuses to match a competing carrier’s premium fares; Delta and United only seem to match when their back is against the wall; while American will match almost any competitor anytime.

Paid Upgrades: Now a Tougher Decision

In the old airfare economy, elites did one of two things on domestic flights: burn 30,000 miles to ensure an upgrade at time of ticketing, or wait one to five days before departure (depending on elite status level) and play the odds. If you’re aligned with a carrier that charges for elite upgrade privileges, compare the cost of a $998 round-trip Premium Class fare with a $400 round-trip coach fare plus an elite-upgrade purchase ($400 round-trip on American, $500 on United). As the cost gap between various booking strategies narrows, it can be tempting to go for the sure thing rather than play elite-upgrade roulette.

Elite Earning Considerations

The three network carriers offering $499 premium cabin fares are an especially good value for another reason — they net you significant elite-earning credit. Example: If you’re a Delta Medallion member, the carrier’s lowest New York-Los Angeles economy class fares only net an elite-qualifying credit of 50% of actual miles flown. But by booking a $499 premium fare you: avoid the risk of your elite upgrade not coming through; avoid burning the 20,000 miles to upgrade (especially remarkable now as Delta requires you pay a $630 economy fare if you use miles to upgrade) and net a fistful of elite credit by paying the $499 one-way fare — up to 150% of miles flown (depending on carrier and fare paid). That’s up to triple the elite credit you'll earn with Delta on other fares. In other words, your 30K miles saves you only $369.

Low-Cost Carriers: Be Careful What You Wish For

Yes, the discount airlines have come to the rescue of business travelers forced to pay exorbitant fares. On the other hand, if you give the up-and-comers enough of your business, the big guys might fall — or worse, adopt more of the low-cost, low-service model.

In which case you’d be kissing more domestic First Class seats goodbye.