Delta is poised to cut fares

ATLANTA (Richmond Times Dispatch) — Delta Air Lines could roll out a national version of its simplified fare experiment as soon as tomorrow in a move that should cut prices and spark more competition in the struggling industry. Industry analysts expect Delta’s changes to be similar to a plan in Cincinnati, where last year it cut fares by up to 60 percent and ditched some restrictions. The aim of the strategy was to try to woo customers from discounters.

“I think it’s a done deal. I think it’s logical,” said Ray Neidl, an airline analyst with Calyon Securities. “They’ve said nothing but nice things about the experiment in Cincinnati.”

Delta CEO Gerald Grinstein recently said the Simpli- Fares plan boosted Cincinnati bookings by approximately one-third. “It also has received rave reviews from customers,” he said. “SimpliFares have provided . . . a 73 percent increase in reservations made through delta.com.”

During August, Delta capped one-way coach fares at its second-largest hub airport at $499, eliminated the Saturday-night stay requirement and halved its fee for changing a ticket to $50.

“Our parking lots are up 21 percent and our concessions are up, so we know there are more people,” said Ted Bushelman, spokesman for the Cincinnati airport, where Delta and its Comair regional carrier account for more than 90 percent of traffic.

Bushelman said he believes lower fares have helped reverse the exodus of one in five Cincinnati travelers who drove to Louisville and other nearby cities served by low-fare discount carriers.

Neidl said he expects Delta to follow pretty much the same recipe nationwide to reverse customers’ migration to low-fare carriers.

Yesterday, the airline declined to comment on news reports that it planned to overhaul and cut fares as soon DELTAas this week. The reports were disclosed this week by Time magazine.

In mid-November, Delta lowered fares from Richmond International Airport to nine key cities, including the top two local destinations, New York and Atlanta.

The fare cuts were especially dramatic for business tickets bought three days or less before a trip. New York-bound travelers saw a 47 percent drop for a Delta round-trip ticket, from $834 to $438.

Tickets to Atlanta dropped 57 percent from $1,114 to $478.

Though deeper discounts can be found at the Newport News/Williamsburg International Airport, some veteran business travelers have said Delta’s move has let them book more trips from Richmond.

The airline’s move also sparked fare competition here, with US Airways and Continental matching — and sometimes undercutting — Delta’s fares to New York.

Richmond airport officials have said they need to see at least two months of results in 2005 before they know the full extent of Delta’s fare experiment.

But a Delta spokeswoman said before Christmas that the airline was seeing a 25 percent to 30 percent increase in passengers between Richmond and Atlanta since the fare change.

Some industry watchers say Delta has been planning for months to restructure its fares nationally as part of a larger turnaround plan that includes shutting down its Dallas hub and changing half its routes.

The carrier may have decided to move up the planned fare changes because Delta may be hoping for a bit of good news to blunt customers’ anger over a holiday travel fiasco at its Comair subsidiary, he said.

A computer glitch led the Cincinnati-based regional carrier to cancel all flights on Christmas, stranding thousands of passengers.

Expanding SimpliFares would make Delta, the nation’s No. 3 airline, more like low-cost airlines that have remained profitable in recent years while bigger, older airlines have struggled to survive. An industry analyst said the simpler fare structures of such budget carriers as Southwest Airlines Co. are likely to be adopted by more of the older airlines.

“The whole sector domestically is moving in that direction,” said Neidl of Calyon Securities. “People like to feel they’re getting cheapest fare, that there’s not this huge discrepancy of fares and it’s hard to find the best one.”

The report comes as Delta continues to fight to stay out of bankruptcy. The airline got a $1 billion concession from pilots, and a big loan from American Express, to avoid bankruptcy last October, but analysts have warned deep changes are needed to make Delta viable in the long term.

Last month Delta started wooing frequent fliers, who have complained that Delta was overcharging them. Delta got rid of some fees and made it easier to get upgrades.

Talking about those changes last month, CEO Grinstein said that Delta has to do a better job giving customers what they want — low prices. “One of the goals we have is to gain that trust.”

Song, the low-fare unit of Delta, separately announced one-way fares as low as $49 between Hartford, Conn., and four Florida cities, and as low as $99 between the East Coast and Los Angeles or Las Vegas. Fares are in effect through Feb. 15.

January 4, 2005   Posted in: Airlines & Railways