United Slashes Leisure Fares, Triggering Sale

Major U.S. carriers quickly matched a summer fare sale announced Tuesday by United Airlines, cutting fares an average 25% on routes where they compete with United.

The sale follows three fare increases that the airlines announced earlier this year, totaling about 11% on leisure seats. So the sale will mean discounts “from a higher [price] base now,” said analyst Raymond Neidl of the investment firm ING Baring Furman Selz in New York.

Still, fares haven’t risen much. Indeed, United’s sale underscores how vacation travelers and other leisure fliers who plan ahead continue to enjoy little or no inflation when it comes to buying airplane seats.

“If you’re going to visit friends in New York, you’ll spend more on dinner there than on an airline ticket,” quipped Thomas Nulty, president of Navigant International Inc., a travel-management firm in Denver.

Even before United’s announcement, domestic leisure fares had dropped 4% in the previous three years, according to analyst Brian Harris of Lehman Bros. in New York. And other observers had predicted that sales were likely again this summer for a variety of reasons. Among them:

* Although planes are still flying with near-record numbers of filled seats, those “load factors” have dipped a bit lately, and the airlines are growing concerned that they could drop further this summer without fare promotions.

“Something is out there [in the future] that the airlines are concerned about,” said Terry Trippler, publisher of the Airfare Report, an industry newsletter in Minneapolis. “Their bookings must not be where we think they are.”

* The airlines also are adding jetliners to their fleets after several years of prosperity, and the carriers need sales to help fill those new planes, analysts said.

In fact, US Airways on Tuesday said its second-quarter financial results will trail Wall Street’s forecasts in part because of lower-than-expected U.S. passenger traffic relative to its fleet’s capacity. United, the nation’s largest airline, made a similar announcement last week.

* And strategic moves by United, the main unit of UAL Corp., are behind its decision to launch the sale. First, part of United’s second-quarter shortfall stemmed from its failure to promptly respond to a fare sale earlier this year by low-fare king Southwest Airlines, so this sale reflects United’s desire to be more aggressive with fares, analysts said.

Also, United just announced a 16% expansion of service from its new Los Angeles International Airport hub starting Sept. 7, the day after Labor Day. “Traditionally that’s when the pleasure-travel season falls off, so United is using its sale to get more pleasure travelers in those planes after Labor Day,” Trippler said.

United’s archrival, AMR Corp.’s American Airlines, still expects strong passenger traffic this summer, but it matched United’s summer discounts to stay competitive, said American spokesman Mark Slitt. “When someone else cuts their price, you don’t want to lose traffic,” he said.

United said its sale fares must be bought at least 14 days in advance of travel and no later than June 18. They’re good for travel between June 22 and Sept. 30, require a Saturday night stay, are nonrefundable and are good for U.S. travel excluding Hawaii. And, of course, they’re subject to United having available seats.

The lowest fares also are good for travel on Tuesday, Wednesday and Saturday. For instance, United cut its round-trip fare from Los Angeles to Chicago on those days to $368 from $440.

While leisure fares remain fairly stagnant, fares for unrestricted, walk-on flights--better known as business fares--have soared in recent years. And those higher prices have finally triggered a decline in business travel, which is another reason why the airlines are starting to post weaker results, analysts said.

“We’ve seen a decay in business demand from the levels we had, no question,” said Lehman’s Harris, who estimates that business fares surged 42% during the last three years.

In fact, Harris theorizes that those price trends have created a major shift in the way consumers view airline travel and its cost.

Conventional wisdom held that leisure travelers’ demand for airline seats was, to use the economics term, “elastic.” That meant their desire for airline travel shifted with changes in fares--if leisure fares went up, “the family piled into the minivan,” Harris said.

Business travelers, in turn, were said to be “inelastic” because they “still went to their meetings” no matter the price, he said.

Yet today those positions have been reversed, Harris contended. Although he can’t yet prove it, he believes vacation travelers are now flying no matter what the cost--and business fliers are looking for cheaper alternatives.

Airline stocks mostly fell following United’s announcement. UAL’s stock lost $2.56 a share, to $63.81; AMR dropped $2 to $67.69 a share, and Delta Air Lines fell $1.06 to $59.94, all on the New York Stock Exchange.

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Priced to Move

A sampling of how round-trip air fares changed after a June 1 price increase of 4% and after a sale announced Tuesday by major airlines:

Los Angeles to New York

* After June 1 increase: $622

* After latest sale: $398, $258 for companion

Los Angeles to Boston

* After June 1 increase: $720

* After latest sale: $398, $258 for companion

Chicago to Dallas

* After June 1 increase: $394

* After latest sale: $268, companion $198

New York to San Francisco

* After June 1 increase: $684

* After latest sale: $398, $258 for companion

Denver to Washington, D.C.

* After June 1 increase: $527

* After latest sale: $368, $198 for companion

Pittsburgh to Nashville

* After June 1 increase: $275

* After latest sale: $188, $98 for companion

Source: Associated Press