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Fri, Jan 07, 2005 - Page 12 News List

Delta moves to slash US ticket prices

COMPETITION The firm's new pricing structure, which caps economy fares at US$499, could send a shock through the entire US industry, analysts said


Delta Air Lines unveiled a new simplified pricing structure on Wednesday that cuts fares by up to 50 percent, a move that may bring established US carriers into the low-fare model and puts more pressure on the troubled industry.

Delta said all its domestic flights in the contiguous US market would have a maximum one-way fare of US$499 for economy class and US$599 for first class. The plan excludes codeshare flights operated by other airlines.

Additionally, there won't be a Saturday night stayover requirement under the program called SimpliFares.

Online Discounts

The ticket change fee has been reduced to US$50 from US$100. Customers making their purchases online will get discounts by buying tickets three, seven and 14 days in advance, Delta added.

"We're expanding SimpliFares based on feedback from our customers, who are calling for simpler, more affordable everyday fares," said Delta chief executive Jerry Grinstein, who noted that the plan had been tested in the company's Cincinnati, Ohio hub.

The new plan could force the other major carriers to match the effort and move away from the traditional complex fare structure.

Merrill Lynch analyst Michael Linenberg said Delta's action could be a shock wave for the entire US airline industry, and cut his ratings for Delta, Northwest, American Airlines and the low-cost carrier AirTran.

"Industry-wide adoption of the Delta domestic fare structure [which we think is likely in Delta-competitive markets] could mean annual revenue dilution of roughly US$2 billion to US$3 billion [on an estimated industry domestic revenue base of about US$70 billion for last year]," he said.

Bad News for Revenues

"We view it as a negative for major carriers whose revenues continue to lag costs," he said.

Linenberg said only the financially strongest carriers, Southwest and JetBlue, would likely benefit from the shift.

One possible outcome, he added, "could be the demise of US Airways, which overlaps with approximately 60 percent of Delta's domestic revenue. If that were to occur, it would be positive for the industry."

Northwest Airlines said the plan would be "revenue negative" if it is implemented for the entire industry.

"Northwest expects that such an initiative, if it becomes general, would immediately adversely and significantly affect industry revenues," the carrier said in a statement.

Lehman Brothers analyst Gary Chase said the program could depress what is already expected to be weak industry revenue this year.

"This risk further reinforces our view that the risk-reward in airline shares has deteriorated," Chase said in a research note.

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