Air Transport World

Pricing for profit: with corporate travelers refusing to pay top dollar to fly anymore, airlines are finally listening. (Strategy).

Finally, after two years of watching low-cost airlines grab market share, US network carriers are "experimenting" with lower business fares. The issue remains whether competition between bankrupt and/or nearly bankrupt carriers will force down network airline costs enough to make the experiments permanent and the new fares profitable.

Many people are waiting to be shown whether the high-cost carriers are more serious about competing with low-fare rivals than when they created now-deceased, not-so-low-cost subsidiaries such as Shuttle by United, MetroJet and Delta Express. Ed Greenslet, publisher of The Airline Monitor, says they have no choice: "Full fares are history. Some fools will still pay them but the Internet shows the outrageous differences in fares, which were mostly hidden before."

Consultant Bob Mann agrees. "I have no quibble with using revenue management in discriminatory pricing," he says. "But everyone's fare strategy [i.e., whatever the market would bear to cover high costs] was so far over the top it choked the golden goose. The ratio of the highest walkup fare to the lowest leisure fare became 8 to 1 or 10 to 1. That is when people said forget it and went to low-cost airlines and the Internet."

Randall Main, former marketing chief at American Airlines and US Airways, reminds that when several startups launched low-fare competition in the 1980s, "those being attacked had better balance sheets and yield management systems that the attackers didn't have. Even though the upstarts had much lower costs, they had no staying power." Still, by the early 1990s several famous names had disappeared.

A decade later, JetBlue started with a $150 million capital cushion. …

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