Major U.S. Airlines Announce Fare Cuts

The top five U.S. airlines slashed air fares in domestic and international markets Monday as they struggle to shore up crumbling revenues weakened by the plunge in business travel.

Atlanta-based Delta Air Lines, the nation’s No. 3 carrier, paved the way for industrywide discounting when it lowered summer and fall prices in most of its markets. Delta said it would offer further discounts on purchases made through its Web site.

After Delta’s announcement, AMR Corp.’s American Airlines, the world’s largest carrier, and Northwest Airlines Inc. said they would make matching offers.

Houston-based Continental Airlines also said it would be competitive on its domestic and international routes. UAL Corp.’s United Airlines said it would match Delta on domestic, Asian and certain Latin American routes.

“You usually don’t see so many sales in June,” ABN Amro analyst Ray Neidl said. “These seem like they have some teeth in them.”

Delta’s special fares are being offered through July 8 for leisure travel to most parts of the United States, Latin America and Asia occurring before Oct. 31.

Delta said customers who buy the sale fares through its Web site will also get as much as an additional 20% discount off each round-trip purchase. American Airlines said it was looking at the online discount option, and United said it would match Delta’s online offer.

A Delta round-trip ticket between Los Angeles and Guadalajara, for example, has been reduced to $240 from $300. The round-trip sale fare between Los Angeles and Boston is $485, and it would cost $390 on Delta’s Web site.

Fares booked on airlines’ Web sites are less expensive for carriers in that they do not have to pay distribution fees to the electronic reservation systems used by travel agents.

These fees cost airlines an average of $12 per round-trip ticket.

“They’re saying, ‘If you help us save, then we’re going to help you save,’ ” said UBS Warburg airline analyst Sam Buttrick.

Some airlines also have eliminated the option of holding unpaid online reservations for 24 hours, which is still standard practice for bookings done over the phone.

The airline industry is grappling with the sharpest revenue declines in two decades. Last week, several U.S. carriers warned they would post wider than expected second-quarter losses as Wall Street analysts downgraded forecasts for the industry’s yearly performance.

With the weakening of lucrative corporate travel, U.S. carriers have begun courting leisure travelers through special fares to offset losses, experts said.

UBS Warburg, which monitors the sale offers, notes that through the end of June, airlines provided 128 days of special fare offers compared with 73 days a year earlier.

Hoping to cut costs, U.S. airlines are increasingly encouraging customers to purchase online as a way to slash distribution expenses.

On Monday, America West said it is offering online discounts of as much as 15% on flights to many parts of Mexico, including Acapulco and Mexico City, if reservations are made before July 1. Through June 29, American is offering special deals to parts of the United States, Mexico, Europe and other destinations.

Before Delta’s announcement Monday, online discounts were typically in the range of 5% to 10%.

“The U.S. carriers, as a result of the use of the Internet, have lost all control of pricing of their product,” said Julius Maldutis, an analyst with CIBC World Markets. “They are now trying to win back some business travelers with fare cuts, [but] I think it’s doomed to failure, because the business travel market is highly inelastic.”

After its announcement, Delta shares lost $1.71 to close at $41.83, and AMR fell $1.12 to close at $33.24. UAL declined 24 cents to close at $32, and Continental dropped $1.01 to close at $44.19. America West shares fell 7 cents to close at $9.03. All trade on the New York Stock Exchange. Northwest fell 63 cents to close at $22.61 on Nasdaq.