"Low-Cost Airlines Cut Fares to Fill Seats"

Tuesday, July 13, 2004

Low-Cost Airlines Cut Fares to Fill Seats
By DAVID KOENIG
The Associated Press


DALLAS -- A fresh round of airfare cuts are great for travelers but pose
a continuing problem for older airlines that can't make money at such
low prices, analysts say. 

Shares of many carriers fell Tuesday after JetBlue Airways announced it
was putting 1 million seats on sale for up to half-off this fall,
including $99 one way fares from New York or Boston to cities in
California. 

Other low-cost carriers have also cut fares in recent days, putting more
pressure on older airlines. 

"It's just a little fall fare sale," JetBlue chief executive David G.
Neeleman said in an interview. "The other airlines will all match it.
It's good for the consumers." 

But the cost will be especially high for older, so-called legacy
carriers, who analysts said would be forced to match the fare sales. 

JetBlue's price cut and a sale from Frontier Airlines came one week
after Southwest Airlines introduced one-way sale fares from $39 to $99
for late summer and early fall. AirTran has also cut some fares as low
as $44 one way. 

Tom Parsons, publisher of travel Web site Bestfares.com, said the
current price war is unusual in its breadth -- that with so many
low-cost carriers offering discounts at the same time, "80 percent of
America is on sale." 

Pricing power in the industry has permanently shifted from the big
airlines, which used to be able to drive out upstarts, to the low-cost
carriers that can thrive at lower prices, he said. 

"David knows how to make money," Parsons said, "and Goliath doesn't." 

The older airlines, such as United, American and Delta, are saddled with
higher costs for labor and planes and have suffered huge losses since
2001. 

Fare cuts are "a continuing problem for the legacy carriers," said Ray
Neidl, an analyst with Blaylock and Partners. "They are going to have to
cut their costs to compete with the low-cost carriers." 

Delta Air Lines Inc. announced Tuesday that it would take a
second-quarter charge of $1.65 billion to cover deferred income taxes
and pilots' pensions. Also, Smith Barney Citigroup downgraded AMR Corp.,
the parent of American Airlines, the largest U.S. carrier, saying rivals
who restructured could wind up with lower costs. 

The combination of news sent airline stocks lower. Delta shares fell 66
cents or nearly 10 percent, to close at $6.09 on the New York Stock
Exchange. Shares of AMR fell 42 cents or 4 percent, to $9.93;
Continental slipped 14 cents or 1.4 percent, to $9.90; and Northwest
Airlines dropped 60 cents or 6 percent, to $9.11 on the Nasdaq Stock
Market. United is operating under bankruptcy court protection. 

JetBlue shares fell $1.19 or 4.5 percent, to $25.52, Southwest shares
lost 16 cents or 1 percent, to $15.40. Shares of AirTran Holdings Inc.
dropped 63 cents or 4.7 percent, to $12.85, and ATA Holdings Corp.,
parent of ATA Airlines, dipped 7 cents to $4.24. 

JetBlue's Neeleman said the fare sale will cover 25 percent to 30
percent of the airline's seats this fall, but he said the carrier would
still earn a profit. He said the industry had added a lot of capacity,
yet the percentage of seats filled were also rising, indicating growing
demand for travel. 

"This is an attempt to make sure we get out early and get some business
booked for the fall," he said. The sale seats "are on flights we
wouldn't necessarily fill up, so it's incremental revenue." 

Keith L. Taylor, vice president for revenue management at Southwest, the
grandaddy of low-cost airlines, said the carrier would put 10 million
seats on sale but expected to make money. 

"It stimulates a lot of traffic, and that's where you make your money,"
he said.


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