Low-cost airlines cut fares to fill seats

David Koenig

Wednesday, July 14, 2004 | 9:21 a.m.

DALLAS -- A fresh round of airfare cuts are great for travelers but pose a continuing problem for older airlines that can't make money at such low prices, analysts say.

Shares of many carriers fell Tuesday 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 G. Neeleman said in an interview. "The other airlines will all match it. It's good for the consumers."

But the cost will 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."

JetBlue's Neeleman said the fare sale will cover 25 percent to 30 percent of the airline's seats this fall, but he said the carrier would still earn a profit. He said the industry had added a lot of capacity, yet the percentage of seats filled is also rising, indicating growing demand for travel.

Keith L. Taylor, vice president for revenue management at Southwest, the grandaddy 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.