Delta Leads Air Fare Cuts

Delta Air Lines has sparked an airfare price war, reports CBS MarketWatch Correspondent Alexis Christoforous.

Not only did Delta cut some fares, but it offered discounts of up to 20 percent for roundtrip tickets purchased over the Internet in an effort to spur summer and fall leisure travel spending at a time when corporate spending has fallen off sharply.

American, United, America West, Northwest and Air Canada joined Delta in cutting some fares about 25 percent for travel this summer and fall. American and America West also mimicked Delta's attempt to drive traffic to its Web site and to encourage low-cost bookings.

Fares booked on airlines' Web sites are less expensive for carriers in that they do not have to pay distribution fees to the electronic reservation systems used by travel agents. These fees cost airlines an average of $12 per roundtrip ticket.

"They're saying, 'If you help us save, then we're going to help you save,'" said UBS Warburg airline analyst Sam Buttrick.

Aside from the potential savings from booking on the Web, Buttrick called the Delta rate cuts "unremarkable."

Terry Trippler, an airline expert with OneTravel.com, wasn't that impressed with Northwest's discounts either.

"If you're thinking of going someplace, you might want to check out the price," he said. "But you're not going to go someplace right away because of the price."

Northwest is doing a good job filling seats through niche marketing — like coupons and bonus frequent-flier miles — that it doesn't need to offer huge discounts, he said.

Consumers without Internet connections are eligible to take advantage of the savings through travel agents that offer special services through Delta's Web site.

The action is consistent with recent efforts to boost online ticketing.

"Since the early 1990s, the airlines have made a concerted effort to reduce distribution costs which currently account for roughly 15 percent of operating expenses," Susan Donofrio, a Deutsche Banc Alex. Brown analyst, said in a recent industry note.

By increasing sales over the Internet, Donofrio said, airline executives believe they can halve distribution costs as a percentage of revenues over the next few years.

Delta, American and America West were among the many airlines that posted hefty losses in the first quarter after a slowdown in the economy prompted major companies to crimp spending on business travel.

Each airline has designated a different period for its discounts, and not all routes are offered.

Air Canada is slashing business-class fares, selling domestic flight business-class tickets at 50 per cent off regular prices.

It's the latest evidence of the impact of the economic slowdown on business travel, but also the result of increased competition.

Discount flyer Canada 3000 initiated a limited business-class service earlier this month.

"There's no question that the industry is down in business travel for the last cople of months," said Northwest spokesman Dennis Mollura.

But OneTravel.com's Trippler said business travel should return to normal levels after Labor Day because corporations have begun to realize they may have overreacted to dire predictions about the economy.

Before Delta's announcement on Monday, online discounts were typically in the range of 5 percent to 10 percent.

In May, airline revenues were down 10 percent, with the majority of that shortfall caused by sluggish business travel spending. Monday's effort to increase leisure travel spending is unlikely to offset the slumping corporate demand, Buttrick said.

Industrywide discounts have been in place for 128 days so far this year, compared with just 73 days of discounts by this time last year.

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