Vegas hopes to cash in on airline’s new fares

Monday, April 29, 2002 | 11:28 a.m.

In the bloody fare war set off by America West Airlines last month, Las Vegas has emerged as a big winner.

Thousands of travelers will be enticed to fly to Las Vegas as major airlines attempt to punish America West for discounting business fares by flooding the airline's hub markets with cheap tickets on competitive routes.

Here's what happened: In late March, Tempe, Ariz.-based America West announced a major fare restructuring plan aimed at luring more business travelers to the airline. America West, the No. 2 scheduled passenger carrier serving McCarran International Airport, reduced its unrestricted walk-up and one-way fares and eliminated Saturday-night stays as a requirement of a purchase.

Mainline competitors, still attempting to rebound from two devastating quarters during which the airline industry collectively lost more than $4.8 billion, were compelled to compete, but also took action to punish America West.

The first to retaliate was Continental Airlines, which immediately canceled a code-share agreement it has had for nearly eight years. The agreement ended Friday and a separate deal that enabled passengers of both airlines to use each other's airport clubs will end in September.

Other airlines then moved to undercut America West's ticket prices in its hub cities -- Phoenix, Las Vegas and Columbus, Ohio -- by offering cheap fares on routes in which they competed with America West.

America West met the challenge with a series of its own sales in those markets. Las Vegas turned out to be prime battleground, with America West offering round-trip tickets to and from most markets for $198 or less for purchases made on the Internet.

The airline's Internet sale requires travel to Las Vegas on a Saturday through Wednesday and a departure from Las Vegas on a Tuesday through Saturday, with tickets outside those days costing slightly more.

The end result of the fare jockeying: Business travelers to and from Las Vegas are taking advantage of reduced ticket prices and leisure travelers are finding inexpensive fares on airline competitors as well as on America West. That doesn't even take into account low fares already offered by discounters such as Southwest, the largest Las Vegas carrier, and National, Frontier and American Trans Air.

"Las Vegas should do very well as a result of America West's action," said Terry Trippler, a travel industry analyst with Trippler & Associates, Minneapolis. "It's a double bonus for Vegas and a big watershed event for the consumer."

Trippler said consumers traveling to and from Phoenix or Las Vegas would be the biggest beneficiaries of the recent fare wars because of Southwest's dominance of both markets and America West's "stirring of the pot."

Trippler gives an example on his Internet site, www.terrytrippler.com.

For a Phoenix-Miami flight, America West offers an unrestricted, no-advance-purchase business fare of $361 one way or $722 round trip. American Airlines countered with a $198 round-trip ticket with the same unrestricted conditions, but routes passengers through either Dallas-Fort Worth or Chicago.

Walk-up fares normally cost around $2,500 and business customers who have their companies pay the bill are more concerned about arriving on time for business meetings than the price.

"My suggestion is simple," Trippler said. "If American Airlines is foolish enough to sell Miami-Phoenix for a money-losing $198 round trip, buy it. Once American's cheap seats are gone, or if you prefer the convenience of a nonstop, book America West for $722 round trip -- a 65 percent savings from pre-restructured levels.

"How serious is American Airlines about lowering fares for you? Consider that while they are offering a $198 round trip, no advance purchase, no minimum stay fare between Miami and Phoenix (connecting in Chicago or Dallas-Fort Worth), their fares between Miami and these connecting cities are as high as ever."

Tom Parsons, president of Bestfares.com, an Internet travel company, said America West is taking a gamble with its fare restructuring tactics.

"This is an effort to steal some of those $2,500 coast-to-coast business travelers away from the big airlines," Parsons said.

Parsons said America West hopes to develop some new customers with the fares. Also, in the last three months, the airline has steadily improved its performance in several categories important to consumers, like on-time performance and baggage handling, to win the loyalty of new converts.

"They figure they'll sell a lot more $400 to $600 tickets and develop some higher yields," Parsons said.

But America West, which currently has an average 72 flights a day to and from McCarran, isn't exactly throwing in the towel on Las Vegas. In addition to the Internet sale, the airline on Wednesday announced a new partnership with casino operator Mandalay Resort Group in which members of the airline's frequent-flier program can get bonus miles by staying at Mandalay's five Las Vegas resorts.

Also, America West customers who book through the company's America West Vacations affiliate are offered express check-in lines at hotels, late check-out privileges, food and beverage credits and advance ticket sales for shows and tours at several Las Vegas resorts.

America West's new fare strategy comes at a time when airlines are trying to jump-start business after a year of weak bookings leading up to Sept. 11 and the further pounding they took after the terrorist attacks.

America West reported a quarterly loss of $358.3 million, $10.62 a share, compared with a loss of $12.8 million, 38 cents a share, for the same period a year earlier.

But during the quarter, the company closed on a $429 federally backed loan, the only one so far approved by the Air Transportation Stabilization Board as part of a $15 billion bailout of the aviation industry. The loan strengthened America West's cash flow position and the company announced that at the end of the first quarter it had a record cash balance of $421 million.

America West executives said during a conference call on its earnings last week that they were caught off guard by the intensity of competitors' retaliatory measures, which officials acknowledged was "worse than we expected."

"The original analysis on fare restructuring was that it is a net positive for America West," said Scott Kirby, executive vice president of sales and marketing. "We're only four weeks in, so there's still a lot of noise in the data, but we've gotten tremendous feedback from consumers. We're quite pleased with the results to date and we remain committed to it."

The restructuring matter was a prime topic in the earnings conference call and seemed to put to rest fresh rumors that America West and Atlanta-based Delta Air Lines were contemplating a merger. Most aviation analysts said such a merger wouldn't make sense because of the position of the two companies' hubs. Neither airline responds publicly to merger reports.

Mike Boyd of the Evergreen, Colo.-based Boyd Group said America West's hub positions in Las Vegas, Phoenix and Columbus, Ohio, would add nothing for Delta, which has two of its hubs in nearby Salt Lake City and Cincinnati.

Trippler and Parsons concur that the benefits of the fare restructuring to Las Vegas should be in place as long as America West stays committed to the system. With the new system in place for less than a month, the city's marketers haven't seen any changes yet, but a spokesman for the Las Vegas Convention and Visitors Authority says the city is looking forward to any fringe benefits that come with the fare war.

"We don't have any hard numbers to indicate whether we've gotten a boost out of this," said LVCVA spokesman Rob Powers. "But we're hopeful. Anything that boosts the number of air passengers has to be good for us. Enticing fares will encourage more people to fly and we hope they fly here."

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