AA Adopts Delta Fare Strategy, Others Selectively Match

American Airlines yesterday modified fares in thousands of domestic markets in a general match of Delta's industry-shaking fare overhaul announced this week. Other carriers said they matched pricing in competitive markets, often with numerous variations. Until the dust settles, it will be difficult to assess the long-term impact on relationships between major carriers and their corporate and agency clients.

Specifically, American eliminated Saturday night stay requirements in affected markets, reduced fare types on average to eight coach class categories and substantially lowered many business fares. In all, at least 90 percent of the airline's markets were impacted by at least certain elements of the announced changes.

United Airlines said it matched Delta in markets in which the two carriers compete head to head. A spokesperson said the airline now is studying a potential response to American's move. Continental also matched on selective routes in which it competes against Delta, as did US Airways. "This underscores the need for us to have a lower cost structure," said a US Airways spokesperson. "Low fares are the direction for the industry."

Northwest Airlines also filed a series of pricing changes during the past two days. While certain elements are similar to Delta's modifications, a Northwest spokesperson did not characterize the actions as matching Delta's. "We have reduced unrestricted fares in many markets, including our hubs," the spokesperson said, adding that Saturday night stay requirements were eliminated and change fees reduced for certain fares in certain markets.

Some of the nation's low-cost carriers-Southwest Airlines and Delta foe AirTran Airways-claimed to maintain their positions as low-fare leaders in their markets.

"For us to match the Delta fares, we'd have to raise ours," said Southwest CEO Gary Kelly in an interview yesterday with Business Travel News. "We have always been opposed to corporate discounts because all of our fares are discounted versus the industry."

Delta is expected to hold firm regardless of industry response. A reversal could shake Wall Street's confidence in the carrier's transformation strategy as it progresses on a precarious out-of-court restructuring. Moreover, the airline has begun to revamp its sales organization, including a sizable reduction in the number of corporate and agency sales personnel in the field. With the exception of large, multinational accounts, more emphasis likely would be placed on direct relationships with clients who migrate their bookings to delta.com.

"Given the fact that Delta's operating costs far exceed the low-cost carriers', the success of this new fare structure remains to be seen," said WorldTravel BTI in a statement. "Additionally, expanding a fare program that worked well in a fortress hub with competitors in nearby airports to an entire network is risky. Nonetheless, we do believe Delta will stand by their decision even if the other legacy carriers do not match immediately."

"Although American has matched pieces of Delta's program, we have yet to understand the full impact to the corporate marketplace, as further negotiations for discounts off those new fares have yet to occur," WorldTravel continued.

The Association of Corporate Travel Executives hailed Delta's new pricing but suggested it would not necessitate wholesale changes to corporate relationships. "There is no indication that corporate customers will not continue to receive consideration for their business," ACTE said in a statement. "Concern over the impact this program will have on the travel management function has been determined to be premature, considering the broadened scope of responsibilities carried by travel management executives today."

Though many observers recognized the concept behind fare simplification-an evolution long demanded by elements of the corporate travel community-some questioned the execution. "We were thinking this type of fare program would have occurred at the start of the second quarter, when the industry was generating cash, not the first quarter, when the industry is using cash," said Helane Becker, analyst with The Benchmark Co. "It looks as though Delta took its pilot cost savings and applied it to this program, so nothing has changed with respect to the outlook for Delta. We expect Delta to have its back against the wall again later this year."

Others wondered how Delta could make the economics of the new fare structure work without also raising lower-end fares. Some suggested the decision, in part, might have been a move to break struggling competitors, notably US Airways.

The more immediate impact, however, is that it makes lower fares accessible to many more business travelers in many more markets. Taken together with lower change fees and more simplified fare rules, the new pricing format has drawn praise from many in the industry.

"We applaud Delta for stepping up," said UBS analyst Robert Ashcroft, "and fundamentally, we think what Delta has done is something that is long overdue from a customer-service standpoint, and that can't be a bad thing."