Posted on: Friday, May 18, 2001
Airfares dropping as market languishes
USA Today
WASHINGTON — Discount airfares are likely to be more plentiful this summer as airlines cope with the weakest air travel market in a decade.
"Our profits, at best, can be characterized as anemic for 2001," David Swierenga, chief economist of the Air Transport Association (ATA), said yesterday.
He said airlines will likely end the year with a net profit of between $1.5 billion and $2 billion, down from more than $2.6 billion in 2000.
This week, the effects of the sagging market began hitting consumers.
Northwest, the nation's fourth-largest carrier and one of Hawai'i's largest, introduced new discounted first-class airfares to lure back business travelers who have attempted to cut travel costs by flying coach.
The First Class BizFlex tickets, which cost 50 percent to 60 percent less than regular first-class fares, must be purchased at least 14 days in advance, require an overnight stay and are nonrefundable. They are available in a limited number on most of the airlines domestic flights.
Several major airlines, including Delta Air Lines, US Airways and America West Airlines, immediately offered matching fares, mostly in markets where they compete head-to-head with Northwest.
The action comes as airlines are reporting a sharp cut back in business travel because of the slowing economy.
Northwest attributed its first-quarter loss of $123 million partially to a fall off of business travel.
UBS Warburg analyst Samuel Buttrick estimates that the nation's 10 largest carriers lost an estimated $700 million in the first quarter after many businesses trimmed travel budgets.
The weak economy is hurting airlines in two ways. Companies are reducing business travel or forcing employees to travel less expensively. Recently, there have been signs that leisure travel is softening, too.
Buttrick said that as bookings slow, major airlines are allocating more seats to discounted fares.
Buttrick said there have been 107 sale days this year compared with 73 last year at this time.
Swierenga said the continued slow growth will put "significant downward pressure" on prices. The ATA's outlook: Airline prices will likely be up just 0.3 percent in 2001 compared with 4.5 percent growth last year.
