Posted on: Monday, October 1, 2001

U.S. airlines to cut fares, aided by security plan

Bloomberg News Service

President Bush speaks to airline workers Thursday at Chicago's O'Hare Airport. He urged governors to call up National Guard units at federal expense for airport security while he implements a long-term airlines protection plan. Associated Press

Delta Air Lines Inc. and Southwest Airlines Co. may lead U.S. carriers in discounting fares to draw edgy consumers back onto planes now that President George W. Bush is pledging more security after the Sept. 11 terrorist hijackings.

Most U.S. airlines last week began offering a few discounts and they may expand the promotions in coming weeks to help overcome travelers' fear of flying, analysts said. Bush last week promised to add armed marshals for flights, strengthen cockpit doors and make airport security a government responsibility, and he urged states to deploy National Guard units at airports.

"We could see the `everything must go sale' coming up this weekend," said Terry Trippler, a fare analyst for the online travel agency OneTravel.com who hadn't seen much discounting until last week.

Delta will cut fares and is preparing a promotion to offer some 10,000 tickets to New York City at low prices, or perhaps for free, Chairman and Chief Executive Leo Mullin said last week. Friday, Delta reduced the number of frequent-flier miles needed to apply for a free flight in North America.

"We are going to put forward a proposal to discount fares on certain routes," Mullin said in an interview. "We are very eager to get people back on the air planes."

Airlines have reduced flights by a fifth and executives say planes are only about 30 percent to 40 percent full following the attacks. Passenger loads are about half what they were last September and below their typical 65 percent break-even point.

Fare Reductions

Fare activity is on the rise now, said Anne Marie Razza, a product manager at the online travel agency Orbitz LLC. United had a $187 fare between Chicago and Phoenix, down from $339 before Sept. 11, and American cut a San Jose, California-Tampa fare to $146 from $302, according to Orbitz, which is owned by five biggest U.S. carriers.

Southwest, the seventh-biggest carrier and largest low-fare airline, cut fares Tuesday and major rivals matched discounts. National Airlines Inc., a discount carrier focused on Las Vegas, led off fare sales on Sept. 19, offering some flights for $1 if a return trip was paid for at special "Get America Flying" rates.

The carriers are also likely to offer frequent-flier incentives, coupons or other promotions to attract passengers, Trippler said. Delta said frequent fliers can get a free North American coach ticket by redeeming 15,000 miles, as opposed to the usual 25,000, through Oct. 14 and a free first-class ticket for 30,000 miles, down from 40,000.

Balancing Needs

While airlines have been eager to bring passengers back, their need to hang onto every dollar of revenue has made them reluctant to cut prices, analysts said. Carriers had already reduced fares this year because of a drop in corporate travel demand, and U.S. airlines were forecast to lose a combined $2.6 billion even before the attacks.

In the first two weeks after the attack, most airlines weren't discounting fares. AMR Corp.'s American Airlines and UAL Corp.'s United Airlines, the two largest carriers, both lost aircraft and needed to cope with employee and passenger deaths.

Last week the airlines focused on pressing Congress and the White House to help them avoid a financial meltdown, eventually securing $15 billion in direct aid and loan guarantees.

Security

Addressing security concerns was essential for winning back passengers, some analysts said, and Bush's remarks last week about making airports across the country safe may have helped that effort. AAA, the largest leisure travel agency, called the move a "prerequisite to bolstering consumer confidence."

"They needed to spend money convincing the public it's safe to fly," said James Parker, a Raymond James & Associates analyst.

The airlines also needed time to make sure new security systems were in place and working smoothly before expecting them to handle a heavier return of travelers, Trippler said.

While airlines have had some doubts about whether bargain fares would overcome the frightening hijacking images, those concerns will diminish over time, analysts said.

The airlines are "worried that dropping prices won't motivate people," said Mike Levine, a Harvard University law professor and former Northwest Airlines Corp. executive.

"The further we get away from September 11, the less true that is and the more likely you'll see fare actions to get people back on the planes," Levine said.

Still, most analysts and industry experts say it's too early to say how the industry's fare structure might be rearranged in the future because there's no sense of how long the drop in demand will last and how much the security measures will cost.

Delta rose $1.97 to $26.33 and Continental rose $2 to $15.