Insiders Reveal the Logic Behind Fare Differentials at Delta and Southwest
Jackie Reddy May 05, 2016
Clerk giving smiling businessman airplane ticket at airport counter
Some go up and some go down: Industry analysts provide insight into recent price hikes at Delta as well as fare slashes at Southwest.
Last week, Delta Air Lines decided to raise some of its fares while Southwest Airlines simultaneously cut prices on certain domestic tickets. The former carrier opted to increase certain last-minute fares by $5 while the latter airline decided to slash prices by the same amount for tickets booked within a seven-day window.
It’s a move that has a number of industry insiders scratching their heads, with some believing that it heralds an end to the tit-for-tat price matching that has been common for so long among major airlines.
Rick Seaney, CEO of FareCompare.com, commented on the respective decisions of the two airlines. He told USA Today that, “The interesting thing … is that generally airlines tend to go in lockstep with airfares. But they don’t seem to be in lockstep at the moment.”
Southwest’s decision to drop its prices came as a particular surprise to Seaney, who said, “I can count on my fingers the times that something like this has occurred.”
He added that fare drops were commonplace during the recession, but less so at present when passenger demand is high.
However, Seaney also pinpointed a possible reason behind the price differential, explaining that the carriers’ overlap on certain routes is “so insignificant.” He also explained that though bigger carriers may compete with each other at larger hub airports, recent industry mergers have meant that just one carrier is more likely to have control over a smaller market. This, Seaney says, gives these carriers the freedom to set fares as they please.
For JPMorgan Analyst Jamie Baker, however, Delta’s price hike was a much-applauded and even bold move.
Writing in an investor note last Friday, Baker commented, “We have long criticized the industry for not being more creative with its pricing efforts … past precedent suggests airlines are unwilling or unable to raise or lower fares except in unison. Historically, pricing discrepancies have rarely been tolerated. But what if this is beginning to change?”
Baker believes that carriers should set their fares based on what distinguishes them from each other, rather than simply playing an old-fashioned price matching game.
[Photo: Ariel Skelley via Getty Images]
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I'm with cynosura... pure unadulterated greed. Delta is awash in record profits so what do they do? First they throw an obscene price increase on multi-city itineraries which forces biz travelers to resort to piecing together one-way itineraries. Then they throw an obscene price increase on one-way hub fares to void the multi-city workaround. Now they throw a general price increase out to soak everyone else a little more. Apparently record profits aren't enough so Delta has to find a way soak biz travelers. And because we've allowed the domestic airlines to consolidate to a point where competition is dead (tit-for tat price increases within moments of each other for the most part) we're all royally screwed. It's sickening IMO... YMMV...
I see a simpler explanation - supply and demand, market share. WN may find some excess inventory on certain routes, would like to increase its market share, price in today's world is one of the best ways to do so. One flaw - not so obvious when WN only sells seats on its own website, making it relatively difficult for consumers to comparison shop.
It may not be collusion but when 1 carrier raises their fare and the others all follow because the profit allows them to do so, it's virtual collusion. Of course there are arguments of "price that the market will bear" but when all of them do the same thing, do you actually have a choice even if the market doesn't bear it, they are forced to do so. I wonder what would happen if there's a rule that says if 1 carrier raise prices, the others cannot follow for 3 months.
Not that it matters but I'm hearing its not too uncommon to find DL F fares cheaper than WN fares when booking closer in.
Baker commented, “We have long criticized the industry for not being more creative with its pricing efforts" Yes, because no amount of profit is ever enough. And "creative with its pricing efforts" could easily be construed as "stick it to the consumer". I mean it is Wall Street where greed is good.