Seeking customers, Delta lowers business, last-minute fares

Leisure travelers are unlikely to benefit from the fare changes, an industry expert said.


Published: Thursday, January 6, 2005 at 6:01 a.m.
Last Modified: Wednesday, January 5, 2005 at 11:19 p.m.
Delta Air Lines Inc., the nation's third-biggest carrier, is cutting its most expensive fares by as much as 50 percent nationwide and is eliminating other restrictions in an effort to woo business travelers and other last-minute ticket buyers.
Delta said in a statement and advertisements in eight newspapers Wednesday that no fare would be higher than $499 one-way in coach class or $599 one-way in first class under its new program.
Shares of Delta and other major airlines slumped after the announcement.
Analysts and airline officials stressed that not every ticket buyer will see a fare reduction, but this would make Delta's fare structure easier to understand and manage. Airline executives also said that in the short term, the program could lead to lower revenues for the struggling carrier, but it could benefit Delta long-term by bringing in more customers.
"Let it be clear, this is not a fare sale," chief executive Gerald Grinstein said in a conference call with investors Wednesday. "This is a fundamental change to our pricing structure."
It's not clear how much the changes at Delta will catch on at other major carriers, and there were no immediate announcements by other major airlines that they would match them.
And even before Delta made the formal announcement of its widely-rumored national program, rival Northwest Airlines Corp., the No. 4 carrier, said the effects of the Delta fare cut would hurt industrywide revenue. On Wednesday, a Northwest spokesman would not say if the airline plans to match Delta; discount rival AirTran Airways, based on Orlando, Fla., said it had no plans to do what Delta is doing. The nation's No. 1 carrier, American Airlines, said it would review Delta's program.
"We expect a significantly hostile industry response," J.P. Morgan airline analyst Jamie Baker said in a research note Wednesday.
Merrill Lynch analysts said in a research note that if there was an industrywide adoption of Delta's overhauled fare structure, the nation's carriers could see their combined revenue reduced between $2 billion and $3 billion annually.
Leisure travelers are not likely to be big beneficiaries of the fare changes, said Terry Trippler, an industry expert in Minneapolis who runs an airline information Web site. They often buy their tickets well in advance of their trips.
"John and Mary who want to go see their grandkids in San Francisco and they got a $250 price yesterday, if they think it's $125 today, they're in for a surprise," Trippler said.
"But, now Mary going on a business trip at the last minute who was quoted $1,200 roundtrip yesterday may get $600 roundtrip today," he added. "It kind of depends on who you are and where you're going."
Also Wednesday, Delta reiterated its plans to charge $50 instead of $100 to change tickets and said it would eliminate a Saturday-night stay-over to get a cheaper fare. That last option had been previously available only on flights from Cincinnati where the program has been tested for several months. Cincinnati is Atlanta-based Delta's second-largest hub.
Delta is the only one of the big six legacy carriers to completely eliminate the Saturday-night stay-over provision nationwide, though many carriers have done so in certain markets around the country, Trippler said.
He said he believes other carriers will take a hard look at what Delta is doing, but he believes it is unclear if it will be matched elsewhere.
Delta's shares sank nearly 13 percent, falling 94 cents to $6.37, in afternoon trading on the New York Stock Exchange and rival airlines shares were also sharply lower.
Northwest Airlines shares were down $1.09, or 11.3 percent, at $8.55 on the Nasdaq Stock Market. Continental Airlines Inc. shares fell $1.27, or 10.4 percent, to $10.93 on the NYSE where American Airline's parent AMR Corp. was off $1.14, or 11.4 percent, at $8.87.
Delta spokesman Anthony Black agreed that business travelers will see the most benefit from the changes, but he stressed that the fare structure at Delta is getting simpler to allow it to compete better with discount carriers like AirTran Airways.
For example, he said, the most a coach class traveler will pay for a one-way fare from Atlanta to Seattle is $499; before it was $1,145. A first-class traveler on that route will pay at most $599 one-way; before it was $1,245.
From Boston to Key West, Fla., a popular leisure route, a coach class traveler will pay at most $389 one-way; before it was $687 one-way, Black said.
On every route, Black said, Delta now will offer only six coach fares and two first-class fares, as opposed to many before. Within that, there still could be sales in certain markets to compete with discount carriers.
Trippler, the airline analyst, said only time will tell whether the plan works for Delta.
The program went into effect nationwide on Wednesday. Those people who bought full-fare tickets before Wednesday won't be able to turn them in for the reduced fares, spokeswoman Benet Wilson said.
Delta was hyping the program in many of its key markets. It ran two-page ads in six newspapers around the country and one-page ads in two other papers on Wednesday. It plans further ads in three newspapers on Sunday.

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