Airlines fight for business patrons
Published: Friday, January 7, 2005 at 6:01 a.m.
Last Modified: Thursday, January 6, 2005 at 11:38 p.m.
Fare cuts aimed at business travelers spread through the airline industry on Thursday, with American Airlines, the nation's largest carrier, imitating Delta Air Lines' decision to sharply reduce the price of tickets booked at the last minute.
Rivals United Airlines, US Airways, Continental Airlines and Northwest Airlines, which are also under assault by rapidly expanding low-cost carriers, took a more limited approach, matching Delta's cuts only in some markets where they compete head-to-head.
Wall Street analysts had been expecting a more aggressive industrywide response and surmised that carriers are waiting to see whether they actually lose a sizable number of high-paying business travelers by not immediately following Delta, and now American, a unit of AMR Corp.
Fed up with the large disparity between prices for last-minute fares on large U.S. airlines and those booked farther in advance, corporate travelers have in recent years increasingly relied upon online booking, videoconferencing and budget carriers in order to decrease their travel spending. On shorter trips, some now drive or take public transportation to reach their destinations in order to avoid the hassles associated with flying since airport security was stepped up after the Sept. 11, 2001, terrorist attacks.
The announcement by Delta Air Lines, the No. 3 U.S. carrier, on Wednesday to overhaul its fare structure was seen as a direct response to this growing financial threat at a time when the industry is also suffering from high fuel prices and bloated operating costs.
While the overhaul, if mimicked industrywide, could reduce U.S. carriers' annual revenue by $2 billion to $3 billion in 2005, analysts believe it is a smart long-term strategy.
''I think it will become quickly apparent that those that don't match will be at a competitive disadvantage,'' said Jim Corridore, airline analyst at Standard and Poor's in New York. ''These are your most profitable travelers and you don't want to lose them.''
That said, even American appeared to signal some hesitation about the move by announcing that it was broadly matching ''Delta's'' decision to eliminate Saturday-night stay requirements and lower last-minute leisure and business fares in thousands of domestic markets.
''They're keeping their mind open by essentially saying 'If Delta changes (back), then we reserve the right to change it as well,' '' Corridore said.
Continental Airlines Inc., Northwest Airlines Corp., UAL Corp.'s United Airlines and US Airways Group Inc. made more limited adjustments, copying Delta's cheaper ticket prices in select markets where they go head to head.
While these carriers did not announce overhauls to their fare structures, it is possible they are quietly offering cheaper tickets in order to remain competitive, while waiting to see whether the changes at Delta and American stick.
Two discount carriers, Southwest Airlines Inc. and AirTran, said they already offer lower fares than Delta's new model.
On Wednesday, Delta Air Lines Inc. cut its most expensive fares by as much as 50 percent and said no fare would be higher than $499 one-way in coach class or $599 one-way in first class under its new program.
Similar to Delta, American reduced the number of different fares in each market and sharply lowered the price of tickets purchased at the last moment. However, American did not announce an official price cap and, so, its new fares are not as low as Delta's across the board.
American said the price of a one-way, last-minute ticket from Dallas to Washington would drop to $499, down from $880. The highest fare between Chicago and Salt Lake City declined to $299 one-way, down from $524.
American also differed from Delta in that it chose to maintain a $100 change fee for non-refundable fares, while the Atlanta-based carrier lowered its fee to $50.
Minneapolis-based fare expert Terry Trippler said he believes the slightly more modest adjustments made by American were more likely to be mimicked by rivals, though he maintained that all the fare changes made in the past week could prove temporary.
AMR shares fell 30 cents to close at $8.75 on the New York Stock Exchange, where shares Delta shares lost 25 cents to end at $6.55 and shares of Continental fell 84 cents to close at $10.37.
Northwest Airlines stock slipped 16 cents to end at $8.44 on the Nasdaq Stock Market.
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