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 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 response and surmised that carriers are waiting to see whether they lose a sizable number of high-paying business travelers by not immediately following Delta, and now American.
Fed up with the large disparity between prices for last-minute fares on large U.S. airlines and those booked further in advance, corporate travelers have in recent years increasingly relied upon online booking, videoconferencing and budget carriers in order to decrease travel spending. On shorter trips, some drive or take public transportation in order to avoid the hassles associated with flying since airport security was stepped up after 9/11.
The announcement Wednesday by Delta Air Lines, the No. 3 U.S. carrier, of an overhaul of its fare structure was seen as a direct response to this threat while the industry is suffering from high fuel prices and 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 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, Northwest Airlines, United Airlines and US Airways Group 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 of 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.
Discount carriers Southwest Airlines Inc. and AirTran said they 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.
Like Delta, American reduced the number of fares in each market and lowered the price of tickets bought 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 nonrefundable fares, while Delta 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.
FARE GAME: airlines scramble to cut prices
Delta Air Lines' announcement on Wednesday that it would slash some fares sparked a chain responses by some of its competitors:
Airline Fare changes
Delta Capped unrestricted, one-way fares at $499 for
economy and $599 for business; lowered
ticket-change fee from $100 to $50; eliminated
Saturday stay-over requirements
AirTran Said its fares are lower than Delta's
American Largely matched Delta's changes in selected
Continental Limited adjustments in select markets shared
Northwest Limited adjustments in select markets shared
Southwest Said its fares are lower than Delta's
United Limited adjustments in select markets shared
US Airways Limited adjustments in select markets shared
Sources: The airlines