Delta Air Lines announces fare cuts meant to bring back customers
Published: Wednesday, January 5, 2005 at 11:01 a.m.
Last Modified: Wednesday, January 5, 2005 at 11:16 a.m.
Delta Air Lines Inc. announced on Wednesday that it is cutting domestic fares by up to 50 percent and scrapped its unpopular Saturday-stay requirements in a move it hopes will lure back customers to an airline struggling to avoid bankruptcy.
Its shares sank nearly 6 percent, falling 42 cents to $6.89 in early trading on the New York Stock Exchange.
Other features of the plan called SimpliFares include charging $50 instead of $100 to change tickets and declaring that no one-way coach ticket will cost more than $499 and no one-way first class ticket will cost more than $599.
The changes wouldn't mean cheaper flights for everybody. The main change would be a reduction in the sometimes-great fluctuations that different fliers pay.
The airline seemed confident the new fares would have a significant effect in the industry. A two-page ad Delta took out in the Wednesday edition of The Atlanta Journal-Constitution declared in big letters that "today one airline is changing everything."
Delta had been testing the lower fares since August in Cincinnati, its second-largest hub.
"We're expanding SimpliFares based on feedback from our customers, who are calling for simpler, more affordable everyday fares," Delta Chief Executive Gerald Grinstein said in a news release. "Now customers can be sure that flying Delta means not only an extensive network, customer-friendly technology, strong partnerships and the rewarding SkyMiles loyalty program, it also means easy, accessible and reliable prices."
The move would make the company, the nation's No. 3 airline, more like low-cost airlines such as Southwest Airlines Co. that have remained profitable in recent years while bigger, older airlines have struggled to survive.
It also comes as Delta continues to fight to stay out of bankruptcy.
The airline got a $1 billion concession from pilots, and a big loan from American Express, to avoid bankruptcy last October, but analysts have warned deep changes are needed to make Delta viable in the long term.
Last month, Delta started its wooing with frequent fliers, who'd complained that Delta was overcharging them. Delta got rid of some fees and made it easier to get upgrades.
Talking about those changes last month, chief executive Gerald Grinstein said Delta has to do a better job giving customers what they want - low prices. "One of the goals we have is to gain that trust," Grinstein said.
Delta's action got a chilly reaction from at least one rival. Northwest Airlines Corp., the fourth-largest, said fare cuts of the type Delta is implementing will hurt the industry.
"Northwest believes that 'fare simplifications' of the sort being described are revenue negative," the company said in a statement. Northwest expects that such an initiative, if it becomes general, would immediately adversely and significantly affect industry revenues."
Meanwhile, Delta says it will unveil other changes later this year such as improving its Web site and revealing new employee uniforms. The company also said it is redesigning its aircraft cabins to make them brighter and give them all-leather seats.
Delta's Plan Could Signal Shift in Pricing
Delta's move will pressure other airlines to take similar steps. The carrier's size and its dominant position on the East Coast will likely force other older, legacy airlines to match Delta's changes to remain competitive. US Airways already slashed its fares by nearly 70 percent on flights out of Philadelphia in May. American Airlines cut its fares to Miami in November by as much as 86 percent from several airports, including Washington's Reagan National, New York's La Guardia and Los Angeles International.
Facing increasing competition, the traditional airlines are finding that the best way to retain their best customers is to match as closely as possible the fares and pricing rules offered by budget carriers such as Southwest, JetBlue and AirTran.
"It's what the passengers are demanding," said Christopher Chiames, US Airways' senior vice president of corporate affairs. US Airways has expanded its low-fare strategy from Philadelphia to Reagan National and Fort Lauderdale, Fla.
Terry Trippler, founder of Minneapolis-based travel site TerryTrippler.com, said the highest-priced tickets, such as those for first-class travel, will come down the most, providing a boon to business travelers. Fares that require advance purchase - those mostly bought by leisure travelers - will likely see the smallest reductions because they are already low, he said.
Tom Parsons, publisher of Bestfares.com, said passengers who fly to cities that aren't served by low-cost, low-fare airlines will also see minimal - if any - fare cuts because the competitive pressures are less. Parsons said that airlines may not reap large revenue gains by slashing fares, but they may be able to protect their market share on given routes.
To offer cheaper fares, airlines have to cut their costs. US Airways is struggling to slash about $1 billion in worker pay and benefits as it takes its second trip through bankruptcy court in two years. Late last year, Delta's pilots agreed to about $1 billion in pay cuts as the airline was preparing to file for bankruptcy itself.
The Delta fare plan, reported Sunday night by Time magazine, comes after a rough holiday travel period for many airline passengers. Delta's main commuter carrier, Comair, cancelled all 1,100 of its flights on Christmas day because of a computer glitch, causing thousands of Delta travelers to miss their connecting flights. US Airways canceled 450 flights because of staffing shortages and bad weather.
"The recent customer service fiasco probably forced the airlines to move up their launch plans for the new fares," Trippler said.
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