Audio Will Delta's new fare structure hurt or help the airline industry? (story audio) Photos Keeping up More from MPR Red tails bleeding red ink (01/19/2005) Northwest matches Delta's fare war... reluctantly (01/05/2005) Tools E-mail this page Print this page Sponsor

Will Delta's new fare structure hurt or help the airline industry?
by Bill Catlin, Minnesota Public Radio
February 6, 2005

Delta's move prompted a significant reduction of business fares at the major airlines, including Northwest. (Photo by Tim Boyle/Getty Images)

Airlines and passengers have had a month to digest and react to Delta Airlines' dramatic new approach to air fares, called SimpliFares. Delta slashed its most expensive fares by as much as half and eliminated the much-despised Saturday night stay requirement. One Wall Street analyst says the change could cost airlines billions of dollars if it's adopted across the industry. But some experts say the effect may be minor and could even help the industry.

St. Paul, Minn. — SimpliFares primarily affects business travel, but how?

The National Business Travel Association says companies have seen significant savings in Dallas/Fort Worth, where Delta and American Airlines have competing hubs. Eagan-based Northwest says the move will definitely hurt airline revenues. But for Mike Krebsbach, it's a non-event. Krebsbach manages travel for Minneapolis-based Personnel Decisions International and is president of the North Central Business Travel Association.

"I haven't seen an impact from it. And the folks that I've talked to, I'm hearing the same thing. I'm sure you probably could find a firm that has certain travel patterns that it's going to help them, I just don't think it affects us," says Krebsbach.

From the Twin Cities, Krebsbach says Delta has less service and fewer non-stops than Northwest. Delta doesn't go to Moline, for example and other destinations may require a time-consuming layover.

Northwest's response appears limited in breadth. Last month officials said they've largely adopted Delta's approach on routes where both airlines require a layover. In markets where Northwest flies non-stop but Delta requires a layover, Northwest says it charges more or has more restrictions. When Delta isn't a factor, Northwest has not taken Delta's approach, but has made some modifications.

In a recent employee newsletter, Northwest says in many cases it has cut prices deeply to compete with Delta. The article cites walk-up fares from the Twin Cities ranging from $850 to more than $1,000 that fell to $499.

Consulting firm Harrell Associates says Delta's move prompted a significant reduction of business fares at the major airlines, including Northwest. Harrell Associates compared prices on heavily traveled routes in mid-January this year and last. President Bob Harrell says average business fares on most major network carriers dropped 32 to 44 percent, but a lesser 28 percent for Northwest. He says that's probably because Delta competes less with Northwest than other airlines.

"Northwest does overlap less with Delta than many of the other carriers. Northwest tends to be an upper middle west carrier, and Delta is heavily concentrated in the Southeast part of the United States. So they couldn't be farther apart," says Harrell.

Harrell predicts airlines will lose revenue in the short term, but says the fare changes could stimulate demand.

"I wouldn't be surprised if this uncorks the genie a bit, in terms of creating a surge in business travel that might otherwise have been a bit of a flow because of the improving economic environment. But my sense is this could move the carriers a bit down the road to the good old days," says Harrell.

Nick Vournakis disagrees. Vournakis analyzes business travel costs for Carlson Wagonlit Travel, the world's second largest travel agency. Vournakis doubts the advent of SimpliFares will stimulate more business travel. And he predicts only a small drop in the average ticket price paid. Vournakis says business people were already avoiding the high prices Delta has cut.

"They're just not willing to pay $1,800 for a round trip ticket when they know they can get the same flight for significantly less than that. So what we've seen is a trend for the business traveler to do a better job of planning in advance, do a better job of researching which fares are available," says Vournakis.

Vournakis says the bulk of business travel is bought at a discount, and how airlines adjust their corporate discount programs remains a key question. But he expects airlines will trim discounts so there's little change in the actual cost of tickets.

"I mean especially these days, they can not afford to do anything that is going to be revenue negative for them," says Vournakis.

Vournakis says airlines will continue to adjust their responses to SimpliFares and the final effect remains to be seen, but he says a major fare war is the last thing the industry wants now.