Sun, Jul 21, 2002 page11

• Air carriers in the US slash fares by up to 40 percent

  • BLOOMBERG
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  American Airlines, United Airlines and other major US carriers slashed fares as much as 40 percent to lure travelers, a move that may add to industry losses that exceeded US$1.4 billion in the second quarter.

  US Airways Group Inc, which is trying to stave off a bankruptcy filing, started the sale yesterday on domestic and some international fares. The four largest US carriers -- American, United, Delta Air Lines Inc and Northwest Airlines Corp -- followed suit, said Tom Parsons, chief executive officer of Bestfares.com, which monitors ticket prices.

  "We're seeing the airlines right now going into what we're calling panic mode." Parsons said. "They're bringing out every carrot."

  Fares have been at 15-year lows as carriers compete for travelers after the Sept. 11 attacks and an economic recession hurt travel demand. Most carriers, including United parent UAL Corp and America West Holdings Corp posted second-quarter losses on Friday as traffic fell 9.6 percent for the 10 largest airlines.

  Cheap fares, lower demand and higher security costs have pummeled airline shares. UAL dropped US$1.48 to a 20-year low of US$6.05, and American Airlines parent AMR Corp fell US$0.86 to US$12.01. US Airways, which is trying to cut costs and get a federal loan guarantee to avoid bankruptcy, fell US$0.60 to US$2.50.

  "It's striking that, for the most part, the companies initiating the fare cuts are the companies that are in really poor financial condition," said James Corridore, a Standard & Poor's analyst. "They feel they have no choice but to sell fares whatever way possible. Whoever has the lowest fares is the one who wins."

  Average coach fares in June fell 9.6 percent from a year ago, while the average business or first-class fare dropped 12 percent, according to the Air Transport Association, the trade group for major airlines.

  While the latest fare cuts will increases losses, "this one fare sale by itself is not going to make or break the industry," Corridore said.

  A round-trip flight between New York and Honolulu is on sale for between US$713 and US$775, down from a current price of US$1,141, Parsons said. Boston to Grand Cayman, round trip, is on sale for US$288, down from US$480, Parsons said. Some fares are 40 percent lower, he said.

  The sale removes some restrictions such as required 30-day advance purchase requirements and cuts fares the most for travel Monday through Thursday.

  "It creates incentives for customers to buy tickets in advance," said David Castelveter, a spokesman for US Airways, which is cutting costs to try to stave off a bankruptcy filing. "These are deep discounts."

  Airlines are trying to generate ticket sales for the early fall, a historically slow travel time, as the summer draws to a close, said John Hotard, an American Airlines spokesman.

  Under the sale, tickets for US and Canada travel must be purchased at least seven or 14 days before departure and no later than July 25. A Saturday night stay is required and travel must be completed by Oct. 1, US Airways said.

  For most European flights, tickets have to be bought by July 25, with travel starting Sept. 5 or later and completed by Nov. 30. Tickets for the Caribbean have to be purchased by Aug. 9, with travel starting Sept. 3 or later and completed by Dec. 12.

  AMR Chief Executive Officer Donald Carty and Delta CEO Leo Mullin have called for changes in the way airlines historically have priced tickets, selling seats on the same flight for a wide range of fares based on the travel restrictions they carry. Carty has said the current system is "badly broken," and American hasn't yet decided on changes.

  America West, the eighth-largest US carrier, adopted a new fare system in March to make lower fares available to business travelers and encourage more last-minute leisure traffic. Rival carriers slashed ticket prices in response. America West said today it would have been profitable in the second quarter absent such strong and prolonged retaliation.

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