Delta Air Lines' plan to cut its most-expensive fares and ax a Saturday-night stay-over rule for cheaper tickets could be a boon to business travelers. But some rivals balked at...
ATLANTA — Delta Air Lines’ plan to cut its most-expensive fares and ax a Saturday-night stay-over rule for cheaper tickets could be a boon to business travelers. But some rivals balked at the idea and analysts warned the move could reduce the already struggling industry’s revenues as much as $3 billion a year if every carrier followed suit.
Shares of airline stocks slumped after the announcement.
Several other airlines were reviewing Delta’s plan. None immediately matched it nationwide. And two discount carriers, Southwest and AirTran, said they already offer lower fares than Delta’s new model.
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One thing is for sure from Delta’s decision, analysts said: The days of paying top dollar for domestic flights are numbered as major airlines try to win back business travelers from discount carriers and fight off mounting losses.
“They need briefcases on airlines to make a profit,” said Terry Trippler, an industry expert in Minneapolis who runs an airline information Web site.
Yesterday, Delta, the nation’s third-largest carrier, announced that it 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 no fare would be higher than $499 one-way in coach class or $599 one-way in first class under its new program, which it advertised in newspaper ads in several of its key markets.
Gerald Grinstein, Delta’s chief executive, said the airline was responding to demands from customers, who wanted a simpler way to buy airline tickets. The airline had experimented with the new structure in Cincinnati, where demand grew by 30 percent once the new fares were implemented.
“Our customers are calling for simpler, more affordable everyday fares,” Grinstein said in a statement.
Delta is the only one of the big six legacy carriers to eliminate the Saturday-night stay-over provision nationwide, though many carriers have done so in certain markets, Trippler said.
The program went into effect nationwide yesterday. Those people who bought full-fare tickets before yesterday can exchange them for the reduced fares if they pay a $50 fee, spokeswoman Benet Wilson said.
Analysts and airline officials stressed that not every ticket buyer will see a fare reduction. Leisure travelers were not likely to benefit, because they generally buy their tickets well in advance. 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,” Grinstein said in a conference call with investors. “This is a fundamental change to our pricing structure.”
Northwest Airlines, the No. 4 carrier, said the Delta fare cut would hurt industrywide revenue. Yesterday, a Northwest spokesman would not say if the airline plans to match Delta nationwide, though by the afternoon it and Arlington, Va.-based US Airways matched Delta’s fares on select nonstop routes where they compete head-to-head, according to analysts with access to published fares.
A US Airways spokesman said the carrier was already offering Delta’s new maximum one-way coach fare in 29 percent of its markets. Discount rival AirTran Airways said it had no plans to mimic Delta. The nation’s largest carrier, American Airlines and No. 2 United Airlines, said they were reviewing Delta’s program. Continental Airlines declined to comment.
“We expect a significantly hostile industry response,” J.P. Morgan airline analyst Jamie Baker said in a research note.
Merrill Lynch analysts cautioned 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.
The Delta move, Merrill Lynch said, is reminiscent of American’s attempt to restructure airfares in 1992. In that case, the investment bank said, American’s revenues and share price were hurt, and it quickly dropped the plan by the end of that year.
Delta’s shares sank 51 cents, or nearly 7 percent, to close at $6.80. Northwest shares fell $1.04, or 10.8 percent, to close at $8.60. Continental shares fell 99 cents, or 8.1 percent, to $11.21, and American was off 96 cents, or 9.6 percent, to close at $9.05.
Grinstein’s comments about Cincinnati provided by Knight Ridder Newspapers.