Airline Market Shake-Out II
The other shoe has dropped: American, Northwest, Continental Match Delta’s Lower Air Fares (Bloomberg)
American Airlines and four other U.S. carriers matched Delta Air Lines Inc.’s lower prices on some flights and dropped other restrictions, an Internet travel monitor said. American, the world’s largest carrier, matched Delta, including on 80 percent of flights from Dallas-Fort Worth, said Tom Parsons, chief executive of BestFares.com, an Internet travel information Web site. Northwest Airlines Corp., United Airlines and Continental Airlines Inc. matched on routes served by Atlanta- based Delta, he said. US Airways Group Inc. said it cut fares on some flights. “It’s a super major overhaul to the system,” Parsons said in an interview today. “Over the next 48 hours and over the weekend, the dust should clear and we’ll have a more crystal clear idea of exactly what the bottom line is.”
Delta, the third-biggest U.S. carrier, cut U.S. fares as much as 50 percent, set maximum prices on coach and first-class tickets and eliminated requirements such as a Saturday-night sat to win back customers from low-fare competitors. Carriers such as Southwest Airlines Co. and JetBlue Airways Inc. are adding flights in cities where larger carriers pulled out to help stem annual losses that began in 2001. “There are broad changes we are instituting and we’ll have more to say,” American spokesman Al Becker said today. American, a unit of AMR Corp., has been developing a new ticket pricing system. An attempt to adopt four types of fares and lower prices failed in 1992 when other airlines adopted deeper cuts.
Delta’s top fares are $499 one way for economy seats and $599 one way in first class. It cut the number of fares available on a flight to six from as many as 20. The variety of fares, based on demand and the timing of purchase, results in wide disparities in prices paid by customers sitting next to each other on a flight.
Airline stocks fell yesterday on concern that revenue may drop if carriers match Delta. Merrill Lynch analyst Michael Linenberg said airlines may lose as much as $3 billion a year and cut forecasts on Delta, AMR, Northwest and AirTran Holdings Inc.
It’s amazing to me that these carriers manage to stay in business despite such incredible mismanagement. How one can lose billions of dollars providing transportation services is mindboggling. The only variable cost that I’m away of is fuel prices, the margin of fluctuation of which would have to be a relatively small part of the total cost of providing air service.
If we can stop the government bailouts and constant bankruptcy protection, the market will solve this one relatively quickly.