Airlines Cutting Fares for Holiday Season
Tuesday, November 25, 2008
Nashville for Thanksgiving, anyone? Miami for Christmas? Airlines probably have a deal for you. Credit the wrecked economy.
Airlines have announced price cuts targeting leisure travelers through the usually busy winter holiday season and beyond. Analysts view the moves as an attempt to woo back consumers who are putting off trips in response to the unfolding economic crisis.
The downturn is emerging as the biggest threat to the industry since it was buffeted by surging fuel prices last summer. Now fuel prices are retreating, but so is demand for seats.
In theory, there should be few empty airline seats. Airlines have eliminated about 200,000 seats per day by zapping routes and grounding planes. The reduction was supposed to give airlines room to raise fares. But analysts say winter sales suggest that airlines are struggling to fill their planes.
And where you have empty seats, you have discounts, says Rick Seaney, chief executive of FareCompare.com, which allows travelers to compare prices among Web sites. To fill planes, for instance, Southwest is offering $87 one-way flights between Baltimore and Chicago in early December. Southwest has a $205 flight to Nashville tomorrow from Baltimore.
"It's a benefit of the economic meltdown," Seaney said. "People are pulling down demand, deciding not to bring kids home or deciding to drive. Even with big cutbacks [by the airlines], there are still empty seats."
Delta has a long list of one-way specials priced between $59 and $199. Tickets have to be purchased by Saturday for travel through Jan. 5. The specials carry three- or seven-day advanced purchase requirements, less than the two-week period airlines typically demand for low-priced seats.
American Airlines also is cutting prices, but refuses to call its discounting a fare sale. American has one-way tickets between Washington and Miami for $49 and one-way tickets to Los Angeles for $109. American's winter travel fare period runs Dec. 2 through Feb. 26. Tickets must be booked by Dec. 1.
Local airports are already reporting slowing holiday demand. Combined traffic at Reagan National and Dulles International airports is projected to be about 1.3 million during the Thanksgiving holiday period, a 7 percent drop, based on preliminary estimates. The period is measured from Nov. 21 to Dec. 1. Baltimore-Washington International Marshall Airport is projecting 486,000 holiday passengers between yesterday and Dec. 1, a 2.5 percent slide from last year.
Analysts say airlines may be attempting to shore up leisure travel to make up for the loss of deep-pocketed international and business travelers, who often pay as much as four times what vacationers pay. Last week, the International Air Transport Association reported that first-class and business-class passenger traffic declined globally by 8 percent in September compared with a year ago.
IATA blamed turmoil in the financial sector and a slump in manufacturing confidence in the United States, Japan and Europe. The organization predicts "significant falls" in first-class and business travel as the economy slips deeper into recession.
J.P. Morgan analyst Jamie Baker, in a recent Wall Street note, said airline revenue could fall by as much as 11 percent, eclipsing the 7.5 percent decline in 2002 after the Sept. 11, 2001 terrorist attacks. A fall in 2008 of that magnitude would come if nominal GDP dropped 4 to 5 percent. "Nobody is bullish on demand," he wrote. "The only question is how bad it gets."
Baker said airlines could remain profitable next year if oil prices stay between $50 and $70 per barrel, even with big declines in passenger travel.