American Airlines -- the world's largest carrier -- slashed its domestic fares by as much as 50 percent yesterday, sharply expanding a price war set off by Delta Air Lines Inc. earlier in the week and potentially setting off a long-postponed shakeout in the industry.
The price competition is a boon to consumers but adds fresh pressure on airline companies already struggling to sustain operations. Those in bankruptcy protection, such as US Airways Group Inc., United parent UAL Corp. and ATA Holdings Corp., are the least able to sacrifice revenue right now, said airline analyst Raymond Neidl of Calyon Securities Inc. An intense battle over fares could ultimately mean the death of some carriers that are now teetering on the brink, he said.
With giant American Airlines following Delta's move and cutting domestic fares yesterday, struggling carriers could find the going even tougher.
(Gary Tramontina -- Bloomberg News)
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"It will speed up the weaning process," Neidl said.
Recognizing the potential impact on revenue, American parent AMR Corp. stopped short of fully matching the scope of Delta's fare restructuring. It followed Delta's lead in cutting prices on its most expensive tickets, such as those bought at the last minute or in first class. But it eliminated its Saturday night stay requirement only on most routes -- not all, as Delta did.
Under the fare changes, for example, an American round-trip walk-up fare between Washington's Reagan National and Dallas-Fort Worth fell 43 percent, to $998 from $1,760.
But the carrier retained its $100 fee to change tickets, a charge that Delta lowered to $50. Unlike Delta, American limited the number of cheap seats on each flight. And while Delta capped its one-way fares at $499 for coach and $599 for first class, American placed no caps on its fares.
By not matching Delta completely, American may force Delta to retreat on some of its changes, analysts said. "This has eliminated Delta as a player now. American is bigger and stronger," said fare expert Terry Trippler, of TerryTrippler.com.
The moves by Delta and American put increasing pressure on other airlines to slash their fares and reduce their restrictions. So far, only Delta and American have implemented system-wide fare cuts. US Airways reduced its prices last year but only in selected markets. Continental Airlines Inc. cut its ticket prices earlier this week but only on routes where it competes with Delta.
To offer lower fares, the traditional hub-and-spoke airlines will need to further cut their costs -- and that could mean additional cuts in workers' pay and benefits, Neidl said.
"You're reducing your fares, but you also have to reduce your cost structure," he said.
