United Airlines slashed fares aimed at business travelers by as much as 40 percent on more than half its routes yesterday, joining other carriers in an experiment that could signal a long-expected restructuring of ticket pricing in the airline industry.
The decision by United, which is struggling to find a profitable business model as it works to emerge from bankruptcy court protection, is meant to lure more high-paying, frequent business travelers so that the increase in traffic would outweigh any short-term loss in revenue. Other major airlines, including American, Delta and Continental, immediately matched the fares in cities where they compete with the Chicago-based carrier.
Analysts said the fare cuts could eventually end the practice of having leisure travelers in effect subsidized by business passengers, who pay three to five times as much for a ticket because they generally don't book as far in advance and usually do not stay over on a Saturday night. If business fares remain low and attract more travelers, airlines might raise leisure fares or reduce the number of discounted seats they offer.
"It is an attempt to start to close that gap between the business traveler and pleasure traveler," said Terry Trippler, who operates an Internet newsletter about the industry. The fare gap, he said, is the result of the deregulation of the airlines some 25 years ago.
Business travel has been depressed for nearly two years, hurt first by the recession and then by security and economic worries stemming from the 2001 terrorist attacks. In addition, the major airlines have been losing some business travelers to discounters such as Southwest and JetBlue, which do not require Saturday-night stays and offer one-way tickets without penalties.
The airline industry is expected to lose more than $9 billion in 2002, on top of a $7.7 billion loss in 2001. So several carriers are testing major changes in fares. In March, America West, the nation's eighth-largest carrier, cut its business fares by 40 to 70 percent. American Airlines -- the world's largest carrier -- began testing fare reductions in 23 cities in November and expanded the test last month. Delta is also testing a new pricing structure for business travelers in some markets.
United, which is losing about $20 million a day, and the other airlines hope that lowering the fares aimed at their best customers will cause corporations to ease their spending constraints and approve more business trips.
"This is one of the things we've been asking airlines to do," said Eugene Laney, director of information and legislative services at the National Business Travel Association. "It's the only way they can get business travelers back on the road again."
Most of United's discounted business fares apply to flights from, to or connecting through its two largest hub airports, Chicago and Denver. For example, a last-minute one-way fare between Washington and Chicago dropped to $384 from $694. The fare between Washington and Denver fell to $527 from $981. The fares, which are nonrefundable, are available for one-way or round-trip travel and do not require a Saturday-night stay.
Kevin Mitchell, head of the Business Travel Coalition, said the new fares were a "good step" but added that the airlines should also begin relaxing rules and allowing travelers to reuse their tickets on later trips if they miss a flight and forget to rebook.
In the past, lowered business fares have had consequences for leisure travelers. When America West cut its business fares last March, it "drastically" reduced the number of deeply discounted seats it sold on Internet travel sites such as Expedia.com, Orbitz and Travelocity.com, said America West spokeswoman Janice Monahan.
The action paid off, Monahan said. The airline reported that its revenue from business travelers increased 14 percent in its third quarter from the same period a year earlier.
Chris Bowers, senior vice president of United's sales and reservations, said the airline had no plans to reduce the number of cheap seats it allows or to increase its most heavily discounted fares. "The leisure fares have been pretty good, so I don't see any necessary adjustment in that," Bowers said.
J.P. Morgan Chase & Co. airline analyst Jamie Baker said he expects United and other airlines that have adopted the lower fares to generate less revenue at least through the summer, when business travel picks up. "We think this is the right move for the industry," Baker said. "It has a long-term positive implication, though with near-term revenue consequences."
United's Bowers said the airline does not expect the deep discounts to result in a drop in revenue. "We wouldn't have put something out there if it didn't make sense for the consumer and ourselves," he said.
Bowers acknowledged that, in part, the new fares were aimed at luring back thrifty business travelers who have abandoned United for low-cost carriers.
Southwest spokesman Ed Stewart said the airline was not threatened by United's new prices because most of its fares were still much lower than any major carrier's. "If we wanted to match those fares," he said, "we would have to raise our fares by $100 to $300."