Sponsored by:

Comment, blog & share photos

Log in | Become a member
The Honolulu Advertiser

Posted on: Tuesday, January 4, 2005

Delta plans major fare cuts

Advertiser News Services

Delta Air Lines is expected to dramatically cut airfares next week, eliminating some cheap-ticket restrictions such as the requirement for overnight Saturday stays, to compete with low-cost carriers and avoid bankruptcy.

Delta is planning to replicate nationwide a fare-cutting plan called SimpliFares it has been testing since August in Cincinnati, with some flights 60 percent cheaper than before, according to a report in Time magazine.

Analysts said they expect the bigger airlines to counter Delta with similar offerings.

"This is a revamping of the pricing structure to reflect competitive realities," said Douglas Abbey, with the Washington-based aviation consultant Velocity Group, of Delta's move. "I give them kudos for this — this needs to be done."

Citing a policy against discussing fare changes until they take effect, a Delta spokeswoman declined to confirm the reductions.

But at least two travel agents called by reporters knew about the fare changes and were already using them. At Atlanta's Explorations Travel, owner Jean Pickard booked a business flier on a flight that usually costs $607. Yesterday, Pickard booked that Atlanta-to-Richmond, Va., flight for $270.

"It's going to make a lot of customers happy," Pickard said. "I think everyone's gonna have to match it now that Delta's going to this."

A Delta jet departs Atlanta, where travel agents are seeing Delta's cheaper fares show up in bookings even though the cuts have not yet been announced. A flight to Richmond, Va., has dropped from $607 to $270.

Associated Press library photo

Atlanta-based Delta, which narrowly avoided bankruptcy last year, plans to lower prices on business class to last-minute ticket purchasers, according to Time magazine.

Delta's simplified pricing strategy includes plans to drop the fee for changing tickets from $100 to $50.

The airline will also eliminate financial penalties for passengers who don't stay over on a Saturday night and reduce the disparity in prices for different classes of travel. The plan will reportedly not affect international travel.

Delta's decision comes during a notoriously slow time for air travel — between the holiday rush and spring travel.

"Look at the timing — it's a time of severely reduced travel," said Clint Oster, an aviation expert at Indiana University. "And there's severely reduced revenues for that reason."

Fare wars are a strategy game, said John Pincavage, an airline analyst with Pincavage and Associates. "If I can drop my fares before the other guy and capture the dollars that are going to be spent — or encourage more dollars to be spent — I get my proportionate share and help my cash flow," he said.

The move will put pressure on other troubled airlines to match the cuts, pressure that could force at least one out of business, Pincavage said.

"Part of it may be to help make some of these guys disappear," he said. "And some of it has to do with the fact that the bookings may not look that great this winter, so they're hustling to get their share."

The large, so-called legacy airlines need a new pricing structure, said Tom Parsons, publisher of Bestfares.com.

Delta needs to set prices at a level high enough where it can make money, but low enough so customers aren't enticed to choose a low-cost carrier. In many areas, the low-cost carrier is often not at the same airport Delta serves, but flying out of a nearby market. So Delta doesn't need to match the fare of the low-cost carrier in every market. But the price has to be low enough to keep travelers from choosing to drive to an airport further away, Parsons said.

"If you can keep those fares $20 to $30 higher (than the low-cost carrier charges), I think you're going to see this become one of the best weapons the legacy airlines have to deter the low-cost airlines from growing as fast as they are," he said.

In a speech in New York last month, Jerry Grinstein, Delta's chief executive officer, called the Simplifares program "affordable and easy to understand.

"It also has received rave reviews from customers," Grinstein said. "Simplifares have provided a 30 percent boost in Cincinnati-based bookings and a 73 percent increase in reservations made through delta.com."

Delta, like other large carriers, has been cutting costs in an effort to return to profitability. The airline's bottom line last year was hurt by high labor costs and large increases in fuel prices.

Its prospects improved in October, when Delta's pilots agreed to $1 billion in salary reductions.

But Delta ended the year on a rough note when Comair, its largest regional carrier, grounded about 75 percent of its fleet on Dec. 23 because of weather and computer problems.