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News > Fortune 500
Delta slashes fares up to 50%
No. 3 airline rolls the dice with big fare reductions. Will other airlines follow?
January 5, 2005: 4:19 PM EST
By Steve Hargreaves, CNN/Money staff writer

NEW YORK (CNN/Money) - Delta Air Lines Wednesday slashed fares by up to 50 percent in the most aggressive bid by a major airline so far to fend off cut-throat competition from low-cost carriers.

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The nation's third largest airline is also slashing its fee for changing a flight from $100 to $50 and eliminating a restrictive rule that requires a Saturday-night stay.

"We view (discount airlines) JetBlue, Southwest and AirTran Airways as our principal competitors," Delta's Chief Marketing Officer Paul Matsen said.

Delta (Research) stock tumbled 7.5 percent in New York Stock Exchange trading on the news, which dragged other airline stocks lower as well.

Officials at Delta said the cuts would hurt revenue in the short run but that over time they hoped that an increase in traffic would offset that.

The price cuts sparked speculation that other major airlines will have to follow suit.

"We believe the whole airline industry will now have to move in this direction; this will likely hurt revenues in the short run but could be beneficial in the long run," Calyon Securities analyst Ray Neidl told Reuters.

Merrill Lynch analyst Michael Linenberg said industry-wide fare cuts could cost airlines as much as $3 billion a year, Reuters reported. The industry as a whole, hurt by higher fuel costs, is expected to lose about $6 billion overall this year.

Delta said one-way economy fares would not exceed $499 and the limit on one-way first class fare would be $599.

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A one-way coach ticket from New York City to Jackson Hole, Wyo., was cut to $499 from $1,100. A first-class ticket from Atlanta to San Diego is now $599, down from $1,400.

Delta said it would unveil other changes, including leather seats, new lighting and revamped bathrooms on its planes. It also said it would improve its Web site -- which was slow to respond Wednesday due to a flood of visitors -- and change food options on flights, though it didn't give any details.

Most of the changes should be complete by mid-2006, the carrier said.

A spokeswoman for UAL Corp.'s United Airlines would only say the company is "studying" Delta's plan, dubbed "Simplifares." A spokeswoman for AMR Corp.'s American Airlines said no decision has been made.

Continental Airlines (down $1.06 to $11.14, Research) did not immediately return calls seeking comment.

A US Airways spokesman said the carrier already had similar fares on some of its most popular routes but declined further comment.

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A spokesman for Northwest Airlines Corp., the No. 4 carrier, said the airline will continue to offer competitive prices but wouldn't comment further. The airline said Tuesday that the changes by Delta, if widely adopted, would hurt industry revenue.

Delta executives said even if other airlines followed their lead, the company still believes revenue will grow in the long term, although they admitted their bottom line would take an immediate hit.

"There will be a short-term revenue impact," Delta's Matsen said in a conference call Wednesday. "We expect it to transform our business nationwide."

Matsen pointed to a trial run of the program -- rolled out in Cincinnati in August -- that showed a 30 percent increase in traffic despite similar price cuts by other airlines. Executives would not provide any numbers on how much revenue would be impacted.

Delta averted a bankruptcy filing in October when its pilots agreed to take over a 30 percent cut in pay, which the airline said will save the carrier about $1 billion a year.

Other airlines under bankruptcy protection include UAL Corp.'s United Airlines, U.S. Airways, Aloha Air Group's Aloha Airlines and ATA Holdings Corp.'s ATA Airlines.

US Airways (down $0.07 to $1.07, Research) stock sank 6 percent, UAL (down $0.16 to $1.30, Research) tumbled 9.6 percent, Northwest (down $1.04 to $8.60, Research) fell more than 10 percent and AMR Corp. (down $1.00 to $9.01, Research) and Continental (down $1.05 to $11.15, Research) both lost more than 8 percent on the New York Stock Exchange.  Top of page

-- from staff and wire reports

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