Delta Raises Fares While Southwest Lowers Them
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Southwest Airlines surprised fliers (and investors) this week when it cut some of its fares by $5 each way. The price drop comes after a series of industry-wide increases earlier this year.
Not everyone will be able to benefit from the newly lowered fares, as the drop only applies to tickets bought within seven days of departure.
Why do this? Leisure travelers usually don’t buy tickets so soon before departure. The move was most likely made to make Southwest more attractive to business travelers, who are more likely to purchase tickets at such a late date.
The interesting thing about this latest fare change is how the other airlines reacted to it. Rather than following Southwest’s lead, Delta Air Lines actually raised fares on domestic routes by $5. The increase was even put in place on routes that are also flown by Southwest.
Either Delta does not think that Southwest’s discount will last or it feels that it already has an advantage over the LCC in the business travel market and does not need to compete on price.
United and American both said that they matched Southwest’s reductions, but only on routes where there is direct competition. Fares on routes not flown by Southwest remained unchanged. At the same time, both other legacies made it clear that they would not match Delta’s $5 fare hike.
Airlines adjust fares on specific routes often in order to stay competitive. However, the industry usually only takes notice when an airline changes fares across the board like Southwest and Delta did this week.
Such fare changes don’t always stick. It is possible that Delta or Southwest will give up their increase or decrease in the coming days.
However, these most recent moves could prove significant for a couple of reasons. First of all, major airline shareholders have expressed concern about carriers lowering fares as they try to compete with ultra-budget airlines on price. Investors are concerned that lowering fares too much will cut into profits made because of low fuel prices and higher demand. That is why Southwest’s $5 drop came as a surprise to many.
The other interesting aspect of the latest fare changes is that Delta did not follow Southwest’s lead and instead went in the other direction. Could it be testing whether it is necessary to compete on price alone?
Delta has been increasing the number of flights that offer its no-frills “basic economy” fares. These allow it compete for passengers who choose their carrier based only on price while also offering full fares on the same flight. Could this latest “opposite of the crowd” move be the first signs of a move away from direct price competition?
Investors will certainly hope so. And, if this the start of a new trend, it might not be a bad thing for fliers either, because they will be able to choose their carrier based on the kind of experience that it can provide, not just on price.
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