Steep Airline Fare Cuts Spread Despite Rising Fuel Bills for Carriers

Several major U.S. airlines Tuesday matched steep fare cuts by Eastern Airlines and Trans World Airlines Inc. and postponed a 5.3% fuel-related fare hike that was to go into effect today.

The moves reflect the slack domestic traffic afflicting the industry this summer as well as the downward pricing pressure exerted by the weakest U.S. carriers, industry analysts said.

The fare cuts, which come at a time of rising jet fuel prices and generally weak demand, will further pressure the earnings prospects of the major carriers, analysts said.

AMR Corp.’s American Airlines and UAL Corp.’s United Airlines, respectively the largest and second-largest U.S. carriers, both decided to match the fare cuts by Eastern and TWA, citing competitive reasons.

TWA, cutting fares up to 30% for the fall season, appears to have thrown a wrench into the industry’s plan to raise fares this week because of the spike in fuel prices.

The fare cuts, which are also being matched by USAir Group Inc., are an ominous sign given the sharp rise in jet fuel prices since Iraq’s invasion of Kuwait and the generally weak travel market, analysts said. USAir told employees Tuesday that it plans to lay off 200 pilots beginning next month and was looking at other job cuts.

“They are delaying because of the TWA fare initiative but they are continuing with their plans for the 5.3% fare increase because without it the industry will bleed to death, suffering heavy losses,” said First Boston analyst Paul Karos.

“They are not making much money even with the fare hike,” said another airline analyst. “To try to stimulate traffic with the fare cuts means they are going to lose their shirts.”

TWA said it would cut non-refundable fares by up to 30% in most markets. The discounted fares must be purchased by Aug. 29 for travel between Sept. 5 and Dec. 16 within the continental United States, Hawaii and Puerto Rico.

Eastern, a Continental Airlines Holdings Inc. unit operating under bankruptcy protection, said its reduced fares are being offered to stimulate fall demand for flights, adding that the discounts give savings of 15% to 40%, depending on the market.

American Airlines said it would match the TWA move in all domestic markets and the Eastern move in selected markets. United said it would match the TWA and Eastern fare reductions where it competes with them.

Delta Air Lines Inc., the third-largest U.S. carrier, said it has no current plans to cut its fares but said it still has the matter under review.

“To be competitive we have to match our competitors fare moves,” said an American Airlines spokesman of the carrier’s decision to match the TWA and Eastern moves. “But we are still faced with a huge increase in fuel costs.”

A Delta spokesman said the carrier’s cost of jet fuel has risen nearly 13 cents per gallon since July 31.