A fare war has erupted this week in the California skies, with airlines slashing their lowest fares by 30% to fill planes during what is shaping up as a dismal winter travel season.
But the cuts are certain to slash airline profits as well.
The new fares are $20 one way between most cities in the hotly competitive California corridor, stretching from Los Angeles to San Francisco. In addition, a $22 one-way fare was announced between Los Angeles and San Jose.
The fares require a 21-day advance purchase, putting them out of reach for most business travelers, who can rarely plan trips that far ahead. The number of seats available at the low prices is also limited.
Good for travel between Jan. 3 and Feb. 28, the fares instead are designed to attract leisure travelers, who have the luxury of choosing when to fly. “We are hoping to get some people out of their cars--or off the couch--and into a plane,” said Richard Sweet, marketing manager for Southwest Airlines.
The new low fares are certain to deepen losses at the airlines, already struggling with high fuel costs. One knowledgeable airline executive estimated that the airlines in the California corridor--American, Delta, Southwest, United and USAir--would lose at least $200,000 each on this fare promotion.
This executive said the carriers are already losing $1 million a month in the corridor, one of the nation’s most heavily traveled air markets.
Those losses are forcing some airlines to reduce the number of flights offered in the California corridor to stem--if not stop--the bloodletting.
Money-losing USAir plans to drop 16 round trips in the state in January, marking a 12% reduction in service. Among the casualties are six round trips between Burbank and San Francisco and four round trips between San Diego and San Francisco. Many of the flights are during midafternoon, when business travel is light.
Another competitor, American Airlines, has dropped service between Santa Ana and San Francisco entirely.
“It is suicide alley,” said Raymond Neidl, an analyst with Dillon Read & Co., the New York investment firm. “We are looking at an economy where advance bookings are soft. We’re going to see more of these promotions.”
Indeed, the bargain fares in California come as the airlines nationally are trying gimmicks and giveaways to keep planes filled. Delta Airlines this week said it would give members of its frequent-flier program a free ticket for as little travel as two round trips. Other airlines are expected to match Delta’s ticket-giveaway promotion shortly.
The latest California fare war was ignited by Southwest Airlines last week when it lowered its 21-day advanced purchase fare of $29 to $20 on its routes from Oakland to Burbank and Ontario.
On Monday, industry sources said, USAir not only matched the fare reduction in the markets where it competes with Southwest but also offered it on its other corridor routes as well.
The other airlines quickly followed.
Several airline executives said they matched the fare reduction with great reluctance. “This kind of pricing is ridiculous,” said Vince Durocher, marketing manager for Delta in Los Angeles. “But we can’t let our competitors get ahead of us.”
Sweet, the Southwest executive, acknowledged the $20 one-way fare was not profitable. “But the choice is to fly the seat empty,” he said. “We think it is better to put $20 in an empty seat than to put nothing in it.”
The $20 fare, one of the lowest offered in years, stunned travel agents, who have already started issuing customers new tickets at the lower fare. “All I can say is, ‘Wow,’ ” said Thomas Nulty, president of Associated Travel Management in Santa Ana. “This is a phenomenal price.”
Nulty said that although the fare is designed for the discretionary traveler, business travelers may try to use it. He said business travelers could buy tickets at the $20 fare for travel on three or four days, “throw away the ones you don’t use, and still save money.”
The unrestricted coach fare--the price most commonly paid by business travelers--between Los Angeles and San Francisco is $220 round trip.