January 7, 2005 06:15 PM
Delta Fare Plan Turns Industry on Its Head
Excerpt: By capping fares and simplifying prices, Delta, the nation's third-largest carrier, provoked a price war this week, as it became the first big airline to join forces with low-fare players like Southwest, JetBlue and AirTran.
With the nation's traditional airlines caught in a dizzying vortex, Delta Air Lines is trying to break away from the pack by switching sides.
By capping fares and simplifying prices, Delta, the nation's third-largest carrier, provoked a price war this week, as it became the first big airline to join forces with low-fare players like Southwest, JetBlue and AirTran.
For consumers, the moves mean good deals for now and more opportunities to take cheap trips without Saturday night stay-overs and other restrictions. They also will mean hundreds of dollars in savings on costly business-class fares, a relief for many companies trying to save.
But over the longer run, it could mean fewer choices and the elimination of flights to certain smaller cities. It could even force one or more airlines out of the big leagues, with the first casualty most likely to be US Airways, which is in bankruptcy for the second time in two years.
Nonetheless, in the last two days, one big airline after another - American, a unit of AMR; United, a unit of UAL; Continental; Northwest; and US Airways - has hustled to cut fares to the levels set by Delta, shaving billions of dollars in badly needed revenue at a time when they have already been making deep cuts in spending and eliminating jobs.
Despite the furor that Delta's action has caused, analysts and industry executives say, the move was inevitable.
"It was only a matter of time" before a big airline saw the light, said Dan McKenzie, the airline industry analyst at Smith Barney. "They've been gouging their best customers, and they can't get away with it any more."
Scott D. Nason, vice president for revenue management at American, said: "There has been an inexorable drive to lower fares. I'd be lying if I told you I was shocked" at Delta's action.
After years of charging whatever they pleased for tickets, particularly for those bought at the last minute, big airlines can no longer escape the pressure to slash fares.
Because of the growing power of low-fare airlines, which now carry a quarter of the nation's travelers, passengers are paying $84 on average for a one-way trip from New York to Miami, and just over $200 to fly from New York to San Francisco, according to Back Aviation Solutions, an industry consulting firm.
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