Airfare Wars Show Why Deals Arrive and Depart

By SCOTT MCCARTNEY
Staff Reporter of THE WALL STREET JOURNAL

It's the kind of nasty fare-war skirmish rarely seen in recent years.

Last week, AMR Corp.'s American Airlines changed a three-day advance purchase requirement for discounted business-travel tickets to seven days, hoping competitors would follow suit. When most refused, American shot back by sharply discounting business fares in several competitors' markets.

In return, rival Northwest Airlines began offering $198 round-trip fares, with connections, for three-day advance purchase in about 160 of American's non-stop markets, such as Dallas-Miami and Dallas-New York. By comparison, American's unrestricted fare for business travelers non-stop Dallas-Miami is $1,684 and $1,629 Dallas-La Guardia.

"This is a regular old street fight," says Terry Trippler, a travel industry consultant who closely monitors airline price changes.

For travelers, this latest fare battle offers a glimpse of the motives behind what can sometimes seem like pricing madness among the airlines. It also helps explain why travelers can sometimes find bargain-basement fares, only to see them disappear the next day, or hour. In fact, these particular cheap fares likely will vanish soon -- perhaps as early as Tuesday -- once each airline has made its point to the other.

In recent years, when the economy was strong and airlines were flying high, carriers rarely attacked each other in their core hub cities. But airline executives say this kind of thrust-and-parry feud happened frequently in the netherworld of airline reservation computers in the past. In the early 1990s, during the heyday of airline pricing battles, several airlines were known to include "FU'' in fare codes as a way to signal displeasure to competitors. Airline price signaling became such an issue that the Justice Department ended the industry practice of proposing fare changes in computer reservation systems. Instead, airlines can only offer fares that are immediately available for sale.

Now, in these lean times, the gloves are off again. This recent skirmish got under way last week, when American increased the advance-purchase requirement on discounted business-travel tickets to seven days from three days in markets where such fares exist. The fares don't require a Saturday-night stay, and have been significant to airlines' efforts to lure back business travelers. While leisure travel has picked up, business travel remains sharply depressed as a result of the weak economy.

The change amounted to a de-facto fare increase for business travelers. One carrier estimates about half its business travelers buy the three-day discounted fares, and with the switch would now have to pay about 10% more for the same ticket.

Typically, if other airlines don't match such fare increases, carriers will nix the rise to remain competitive. And this time, only Continental Airlines matched American's change in all the markets. So, in the hub markets of other competitors, American rolled back the fare increase, but kept the new seven-day requirement in its own hub markets where it dominates.

In addition to not following American's lead on the new seven-day requirement, rival Northwest -- which is typically stubborn about such fare increases -- also left its own three-day purchase requirement in American's markets, a move that rankled some American officials.

So to raise the ante, American responded late last week by putting $99 one-way fares in 10 markets flown non-stop by Northwest, 10 flown non-stop by UAL Corp.'s United Airlines, 10 Delta Air Lines markets and 10 US Airways Group Inc. markets, according to several airlines. Typically such bargain moves are designed to pressure rivals into following in step with fare shifts -- in this case, American's new seven-day requirement. Notably, American excluded Continental markets from its $99 one-way fares.

"American is trying to slap the hands of people who wouldn't go along with its increase," says Mr. Trippler.

Asked if American was trying to send a message to other airlines, Al Becker a spokesman for the Fort Worth, Texas, airline said, "Fare changes occur all the time. We do not discuss pricing decisions. But we do offer low fares without Saturday night stays in virtually all of our markets."

The $99 one-way fares, since tweaked to $198-round-trip and cut in some markets Monday to as low as $188, require a three-day advance purchase and have no minimum stay requirement. American offers only connecting service in those markets, but it presents an enticing bargain for business travelers over full fares on non-stop flights.

In turn, Northwest began offering similar fares in 20 markets flown non-stop by American, such as Dallas-Miami and Dallas to New York's La Guardia Airport. American then, over the weekend, increased the cheap fares to 20 total Northwest markets, according to data from computer reservation systems. Northwest retaliated within the last two days by putting the cheap fares in 160 total American markets.

"I can't speculate on the motives of our competitor, but they [the new American discounted fares] did occur shortly after the media reported other airlines were not matching their price increase on business travel," said Northwest spokesman Kurt Ebenhoch. "We feel very strongly that the environment is not right to be imposing increases on travelers that use business fares."