Delta Air Lines today rolled out a new, simplified pricing structure for nearly all flights to and from Greater Cincinnati Northern Kentucky International Airport, the carrier's second-largest hub operation. Dubbed SimpliFares, the pricing format never requires a Saturday night stay and includes unrestricted fares as much as 60 percent below previous levels. Within the contiguous 48 states, last-minute one-way economy fares are capped at $499 and one-way first class fares are capped at $599.
Delta is the largest U.S. carrier to redesign all domestic fares at one of its primary hubs. The new fare structure is comprised of eight levels--two in first class and six in economy--down from 20 or more in certain markets. Customers can book either refundable or nonrefundable fares and purchase within three, seven or 14 days in advance. Ticket change fees were cut from $100 to $50. Unlike simplified pricing structures at some carriers, however, Delta's SimpliFares may require a roundtrip purchase.
Delta today already reached out to dozens of corporate accounts, and the feedback has been "astoundingly positive," according to vice president of sales Pam Elledge. "We separated out fares to and from Cincinnati with a 'best value' designator and we will be working with each account separately starting next week to build back the overall discount strategy," she said. "Strategically, we will maintain agreements and still will have a limited discount structure."
Delta said it chose Cincinnati in part to recapture as many as 2,500 daily travelers who drive up to two hours to use lower fares offered at surrounding airports. "This is a great opportunity to stimulate business demand," said Paul Matsen, Delta chief marketing officer. "We also expect to improve the business mix by introducing a three-day fare that did not exist before and by bringing down first class fares."
Nevertheless, J.P. Morgan Securities analyst Jamie Baker expects "significant revenue dilution" in the early stages, noting that impacted routes to and from Cincinnati generate 5 percent of Delta's system revenue. "At the earliest, we'd expect evidence of demand stimulation/revenue positive results to occur toward mid-2005," he said in a research note. Baker also suggested that Delta's pricing actions in Cincinnati may dissuade low-cost carriers from expanding in the market. "Heretofore, Cincinnati likely appealed to certain competitors, given Delta's egregious and archaic pricing structure."
Delta's pricing action thus far is the most significant move by one of the six largest U.S. carriers toward comprehensive airfare reform. The seventh-largest carrier, US Airways, is in the process of rolling out its simplified pricing design
(BTN, May 10). By early this week, they were available on 22 routes from Philadelphia and 39 routes from Washington. America West Airlines
(BTN, April 8, 2002) and Alaska Airlines
(BTN, March 15) already have taken the plunge into systemwide simplified pricing.
Baker added that "it will be interesting to see if American takes any sort of Dallas fare-restructuring steps to dissuade potential competitors, such as AirTran or Southwest, from trying to exploit the facility vacancies assumed by Delta's final departure." Baker expects Delta to complete a "final dismantling" of its Dallas operation as part of its strategic restructuring.
Delta said the new fare structure is "the first of many initiatives" included in a far-reaching transformation. CEO Gerald Grinstein yesterday laid out a turnaround plan to Delta's board. Beyond SimpliFares, no details have been made public.
SimpliFares were filed last night into global distribution systems and are expected to be available through online travel agencies later today.