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Airfare cuts get a jump on fall travel

By DAVID KOENIG
The Associated Press

RICHARD SHEINWALD / BLOOMBERG NEWS JetBlue passengers line up at Fort Lauderdale-Hollywood (Fla.) International Airport in April. JetBlue Airways Corp.'s first-quarter profit fell 12 percent on higher fuel costs and lower fares.

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Shares of many carriers fell yesterday after JetBlue Airways announced it was putting 1 million seats on sale for up to half-off this fall, including $99 one-way fares from New York or Boston to cities in California. Other low-cost carriers have also cut fares in recent days, putting more pressure on older airlines.

"It's just a little fall fare sale," JetBlue Chief Executive David Neeleman said in an interview. "The other airlines will all match it. It's good for the consumers."

U.S. airline fare sales are common in the traditionally weak period between Labor Day and Thanksgiving. But the annual fare war generally starts later in the year, with the first shots fired by the major carriers.

"It's perfectly normal from a seasonal perspective to see discounted fares for fall travel offered in mid-summer," said Sam Buttrick, analyst at UBS.

	David Neeleman, JetBlue Airways founder and CEO.

"However, the levels are particularly low in markets where there have been significant capacity additions," Buttrick added, citing transcontinental markets and routes such as the Northeast to Florida and Dallas to the West coast.

But the cost may be especially high for older, so-called legacy carriers, who analysts said would be forced to match the fare sales.

JetBlue's price cut and a sale from Frontier Airlines came one week after Southwest Airlines introduced one-way sale fares from $39 to $99 for late summer and early fall. AirTran has also cut some fares as low as $44 one way.

Tom Parsons, publisher of travel Web site Bestfares.com, said the current price war is unusual in its breadth — that with so many low-cost carriers offering discounts at the same time, "80 percent of America is on sale."

Pricing power in the industry has permanently shifted from the big airlines, which used to be able to drive out upstarts, to the low-cost carriers that can thrive at lower prices, he said.

"David knows how to make money," Parsons said, "and Goliath doesn't."

The older airlines, such as United, American and Delta, are saddled with higher costs for labor and planes and have suffered huge losses since 2001.

Fare cuts are "a continuing problem for the legacy carriers," said Ray Neidl, an analyst with Blaylock and Partners. "They are going to have to cut their costs to compete with the low-cost carriers."

Delta Air Lines announced yesterday that it would take a second-quarter charge of $1.65 billion to cover deferred income taxes and pilots' pensions. Also, Smith Barney Citigroup downgraded AMR, the parent of American Airlines, the largest U.S. carrier, saying rivals who restructured could wind up with lower costs.

The news sent airline stocks lower. Delta shares fell 66 cents or nearly 10 percent, to close at $6.09 on the New York Stock Exchange. Shares of AMR fell 42 cents or 4 percent, to $9.93; Continental slipped 14 cents or 1.4 percent, to $9.90; and Northwest Airlines dropped 60 cents or 6 percent, to $9.11 on the Nasdaq Stock Market. United is operating under bankruptcy-court protection.

JetBlue shares fell $1.19 or 4.5 percent, to $25.52, Southwest shares lost 16 cents or 1 percent, to $15.40. Shares of AirTran Holdings dropped 63 cents or 4.7 percent, to $12.85, and ATA Holdings, parent of ATA Airlines, dipped 7 cents to $4.24.

Keith Taylor, vice president for revenue management at Southwest, the granddaddy of low-cost airlines, said the carrier would put 10 million seats on sale but expected to make money.

"It stimulates a lot of traffic, and that's where you make your money," he said.

Information from Reuters is included in this report.

Copyright © 2004 The Seattle Times Company

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