Delta Slashes Everyday Fares...

WorldTraveler

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Dec 5, 2003
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Press Release Source: Delta Air Lines


Delta Slashes Everyday Fares up to 50 Percent as Airline Introduces SimpliFares(tm) Nationwide
Wednesday January 5, 5:00 am ET
Customer feedback, Cincinnati success propels lower fares


ATLANTA, Jan. 5 /PRNewswire-FirstCall/ -- Starting today, customers flying on Delta Air Lines (NYSE: DAL - News) will pay as much as 50 percent less for their ticket as the airline expands its SimpliFares for travel within the 48 contiguous United States.

more at
http://biz.yahoo.com/prnews/050105/clw012_1.html

Customers may be happy but not everyone is.... from CBS Marketwatch

Airlines sink; Continental falls 12.6%
Delta's reported plans to revamp fares weigh on sector

By Matt Andrejczak, CBS.MarketWatch.com
Last Update: 5:27 PM ET Jan. 4, 2005
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SAN FRANCISCO (CBS.MW) -- Airline shares fell sharply Tuesday as investors weighed what impact Delta Air Lines' possible move to cut fares would have on the industry as well as Continental Airlines' sagging December revenue figures.

5:14pm 01/04/05
Northwest Air comments on Delta's fare-cutting plan (NWAC, DAL) By Heather Wilson
SAN FRANCISCO (CBS.MW) -- Northwest Airlines (NWAC) said after the bell Tuesday that it believes Delta Air Lines' (DAL) fare simplification plan would be "revenue negative" if it is implemented. The carrier said that should Delta's fare-cutting initiative be adopted by other airlines it would adversely affect revenue industry-wide.
 
It's about time. Hopefully, DL will stick to its guns and keep this pricing structure in place for good. This could actually raise DL's yields if its done right.

The only real negative I see is that some of the DL's competitors will be very upset by this move. I can definitely see NW, CO or AA trying to undercut DL's fares in order to punish DL for this move. If this starts a massive fare war, it could seriously undermine DL's attempt to restructure.
 
whlinder said:
I agree, I don't think NW will be particularly happy.
[post="235725"][/post]​

I don't think you'll find much sympathy for NW. It appeared that they killed almost every attempted fare hike after 9-11.
 
Thank you Delta - The industry needed this - - have the other big players jumped on yet?
 
AA191 said:
Thank you Delta - The industry needed this - - have the other big players jumped on yet?
[post="235833"][/post]​

Robert Crandall tried this in the 1990's and it was called predatory pricing and CAL either sued or threatened to sue AA over the pricing structure.

In case any of you have not noticed there is not a problem now with getting people on the airplanes.The problem is that the airline management is charging less than it cost to produce the product.
How in the hell do you think that cutting fares for an already struggling airline is going to help the airline? LESS REVENUE IS EXACTLY WHAT DELTA NEEDS TO JOIN THE CHAPTER 11 PARADE.
 
You aren't cutting revenue, just redistibuting it. I wrote a post about how it could help boost revenue yesterday.
 
It's sad to say, but both UAL and US Air need to go away to give some sort of chance to the other four legacies. Maybe this is one of DALs major objectives. No amount of concessions is going to fix a 25% too much capacity problem.
 
goingboeing said:
Robert Crandall tried this in the 1990's and it was called predatory pricing and CAL either sued or threatened to sue AA over the pricing structure.
[post="236013"][/post]​


This fare structure was implemented in CVG first as a trial. Who were we trying to run out of CVG? Hardly what I would call predatory pricing.
 
And how does everyone on this board expect to pay for this new fare structure?

At the expense of employee pay and benefits!
 
IMHO I don't think it will last. Delta is attempting to turn it's self into a Domestic low cost carrier. How do you pay for a cost structure that almost sent you to BK with a loss of 50 to 60% in Domestic yield? Do you spend your $ 1 Billion dollar pilot savings on offering cheap tix, new uniforms, and leather seating? Ring a bell (ATA). This may be an attempt to mortally wound Ual and U. Those two are the least able to survive with lesser revenue. International yield will be the next hit (from ferocious fare wars just around the corner). "05 will be the KNOCK -OUT year for the industry as we know it. Dear Future, please o please give us Mag-Lev Bullett trains ASAP. The airways have become a crowded freeway (stress, lots of wasted time, and all round unpleasentness)
 
Inside Delta's Low-Fare Strategy
S&P Ratings Services takes an in-depth look at what the ailing airline is doing, why, and the possible impact on it and on the industry

Delta Air Lines (DAL ; S&P credit rating, CC; CreditWatch Positive) announced a restructuring of ticket fares across its route system on Jan. 5, 2005, lowering many unrestricted fares often used by business and capping ticket prices at $499 one-way ($599 in first class).

Standard & Poor's Ratings Services believes this is an important move -- and is likely to trigger pricing changes by Delta's competitors. Ultimately for Delta, the risks of adopting a simpler, lower-fare structure have decreased, while the risks of not taking action have increased. S&P Ratings attempts to answer some key questions arising from Delta's fare cuts:

Q: How significant is Delta's change in fare structure?
A: The change, labeled "SimpliFares," simplifies Delta's ticket pricing, removes some restrictions (e.g., Saturday-night stays) and reduces some fares, but it doesn't move all the way to the pricing structure used by Southwest Airlines (LUV ; A; CreditWatch Stable) and some other low-cost carriers.

Also, most of Delta's passengers already fly on fares aimed at the leisure market or low fares offered in response to those of competitors, and these fares will be much less affected. Because of limits on the number of seats sold in each fare class and various other restrictions, the full extent of the change cannot be estimated yet.

Q: Does this move have implications for the ratings or outlook on Delta?
A: Ratings on Delta are currently on CreditWatch with positive implications, due to changes achieved in November, 2004 (a new pilot contract, some limited debt refinancing, and new secured borrowings to bolster cash). The fare action will be analyzed along with other factors that could affect Delta's credit quality, but an upgrade of the corporate credit rating from the current very low level remains quite likely.

Q: Why is Delta making this fare initiative?
A: Traditional hub-and-spoke airlines like Delta (the so-called legacy carriers) face a difficult choice in their revenue planning. If they change to a simpler fare structure and lower business fares, they'll lose some revenue in the short term (as the lower pricing more than offsets some stimulation of traffic).

On the other hand, if they retain their current fare structure, they'll gradually lose more and more customers to low-cost competitors. Low-fare airlines have caused domestic fares to drop and diverted a sufficient number of passengers so that the short-term revenue loss, while material, is much less than it would have been during the late 1990s.

Also, the long-term risk of keeping the current fare structure has increased over time, because low-fare carriers represent a more plausible alternative for business travelers than previously, and because of their greater market share, improved service offering (in some cases), and corporations' more stringent and effective travel cost-control policies. Accordingly, the legacy carriers now stand to lose more by keeping the old fare structure.

Q: Why is Delta launching SimpliFares now?
A: It has been experimenting with this fare structure at its Cincinnati hub since August, 2004, and now has sufficient data (and evidently, good-enough results) to introduce it throughout its system. In addition, Delta significantly increased its dangerously limited cash reserves by borrowing about $1 billion under new secured credit facilities arranged by General Electric Capital (GE ) and American Express Travel Related Services (AXP ). That gives Delta greater capacity to withstand the near-term revenue hit of launching this change now. Delta may have other motives it hasn't disclosed, as well.

Q: Is this move likely to increase or decrease Delta's revenues?
A: In the near term, it's likely to hurt revenue, as the company acknowledges. In the long term, Delta believes that SimpliFares will generate more revenues than the carrier otherwise would (which doesn't necessarily mean more revenues in absolute terms than now). Whether that's true will depend in large part on how its competitors react.

In 1992, American Airlines (B-/CreditWatch Stable), a unit of AMR Corp. (AMR ), launched a somewhat similar, though more sweeping, fare reduction and simplification called "Value Fares." That triggered an industrywide fare war and heavy losses, and the change was eventually abandoned.

Standard & Poor's changed its ratings on all U.S. airlines to CreditWatch with negative implications immediately following the announcement and eventually downgraded most of the airlines. Such a scenario is less likely today, because legacy carriers' revenues have already been reduced by low-fare competition, and the airlines rely much less on high business fares.

Q: Which competitors are most likely to be hurt by Delta's SimpliFares?
A: AirTran Airways, a unit of AirTran Holdings (AAI ; B-; CreditWatch Stable) has the highest overlap with Delta, with both airlines operating their largest hubs at Atlanta. However, AirTran, a low-cost carrier, already offers lower and simpler fares, and Delta has largely matched them on competing routes. Still, Delta could recapture some of those lost business travelers.

Among the legacy carriers, Continental Airlines (CAL ; B; CreditWatch Negative), US Airways (rated D), and American Airlines have the greatest overlap with Delta. Each of these still has markets where they charge relatively high fares (though these are dwindling), and they'll have to match Delta's price cuts. US Airways, already struggling in bankruptcy, is at greatest risk, having already had to introduce similar changes at its Philadelphia hub in response to Southwest Airlines entering that market (see BW Online, 1/6/05, "The Ups and Downs at US Airways").

United Air Lines (rated D) and Northwest Airlines (NWAC ; B CreditWatch Negative) have much less overlap with Delta, but they could be affected if other legacy carriers match Delta, causing the changes to ripple throughout the domestic market.

Q: What are the key risks in Delta's plan?
A: Competitors could respond by undercutting the new fares, setting off a downward spiral in prices. Alternatively, they could match Delta and introduce other changes that hurt Delta (e.g., offering more frequent-flyer miles or dropping some fare restrictions that Delta is keeping). If fuel prices spike back up or a terrorist attack hurts travel while Delta is still going through the near-term period of revenue loss from the fare change, then its financial condition could deteriorate dangerously. So, the final impact may not be known for a while.


Baggaley is a credit analyst following the airline industry for Standard & Poor's Ratings Services