Value Pricing creeping back!!

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Aug 22, 2002
American tests pricing strategy
Experiment looks like ill-fated 1992 system, analysts say
By ERIC TORBENSON / The Dallas Morning News
American Airlines Inc. has begun a simplified ticket pricing experiment on 23 routes – including 11 that fly out of Dallas/Fort Worth International Airport – that could foreshadow changes in how the carrier sells seats.
On the test routes, customers pick among five fare types, compared with two dozen or more types now found on many routes.
The new fares are up to 40 percent lower for business travelers who buy on short notice. For vacationers, the advance-purchase fares are up to $90 more per ticket than before the test, which started last week. The new system looks similar to American''s ill-fated 1992 Value Pricing, which created tumult in the industry. Experts say that although the test is on just a sliver of American''s 50,000 routes, it suggests the world''s top carrier could expand it quickly.
I think they''re really serious about this, said airfare consumer watchdog Terry Trippler of Minneapolis. But I think American is obviously very gun-shy about this kind of thing after what happened with Value Pricing.
Value Pricing, which lasted just a few months, simplified airfare types and lowered prices but sparked a bitter fare war that savaged the industry''s finances until American returned to a more traditional way of selling tickets.
A decade later, the ticketing system appears to be broken, analysts say. The gap between business fares and leisure fares has never been higher, according to American Express. And in the current economy, business travelers are no longer willing to pay as much as 10 times more than vacationers for tickets.
Airline analysts such as Jamie Baker of J.P. Morgan have advocated that American try something akin to Value Pricing, arguing that low-cost carriers are imposing such a system on larger carriers. The industry is on course to lose more than $7 billion this year.
American said it wants to try new ideas based on what it hears from passengers.
We are eager to see how customers respond to this new pricing structure in these markets, American spokesman Tim Kincaid said. The airline wouldn''t discuss how long it intends to run the new prices or what it might do in the future.
Airlines have been experimenting with simplified airfares in the last two years. America West Airlines Inc. has claimed success with its simpler pricing, and low-cost carriers such as Dallas-based Southwest Airlines Co. have always featured few fare types. On Aug. 22, Southwest lowered its most expensive one-way ticket to $299.
American''s move toward simplicity seems different from its experiment with Value Pricing, said Tom Parsons of
In 1992, American wasn''t flexible at all with how it competed with other carriers that undercut Value Pricing, Mr. Parsons said. American now appears to be matching fare sales on test routes.
If American''s new system lasts, bargain hunters probably will still benefit from low-fare carriers, Mr. Parsons said. American competes with them on most of its routes.
Shares of American''s parent company, AMR Corp., closed Monday at $7.15, up 34 cents.


Aug 29, 2002
Not to sound cynical... However, I have followed the U.S. full-service majors too closely for too long to think that the rational pricing decision announced by AA will be around for long; for one simple but incontrovertable axiom I have discovered about the U.S. full service majors:

It makes too much sense for the Big Six airlines to go with it for more than a few fleeting weeks.

Plus, so far, AA is the only cartel airline to announce a plan for rational--even equitable--pricing. That sounds way too much like leadership and doing the right thing for any of the Big Six to be able to handle.
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