For air travelers, low fares keep coming
That brother in Baltimore. That friend you haven't seen since college. That last-minute meeting you thought you couldn't make. If you've been putting it off, now's the time to travel.
Americans who said airfares couldn't dip any lower than this summer's are in for a surprise: They're lower. Here's a sampling of recent round-trip fares: Chicago to Philly: $129. L.A. to the Big Apple: $203. And Charlotte to the nation's capital: $63.
These ticket prices, the lowest in decades, are part of an unusual combination of factors: The price of fuel is at record highs, but competition from cut-rate and upstart carriers keeps coming. And while more Americans are taking to the skies, which has prompted the airlines to add 10 percent more seats since last summer, travelers are unwilling to pay any fare increases.
So for airlines to fill their seats, they're slashing ticket prices. It's another sign of the changes sweeping over the industry - changes that, at least for now, are good news for the traveler.
"It's a real win-win for the consumer this year," says Terry Trippler, a consumer advocate with sidestep.com.
Mr. Trippler says the pent-up demand for travel is like a "dam burst." The Sept. 11 terrorist attacks, the downturn in the economy, and war in Iraq kept people at home - but no longer. "People are retuning to the skies in record numbers," he says. "Europe is a good example. It is definitely not inexpensive this year, and [Americans] are still going."
The biggest reason for the latest airfare war is that low-cost carriers, such as AirTran, JetBlue, and Southwest, are continuing to discount fares.
"Because their costs of operation are so much lower than the major carriers, they can cut fares and still make money," says Richard Gritta, a professor of finance and transportation at the University of Portland in Oregon. "And by doing so, they are exploiting the weaknesses of these major carriers."
Last month, for instance, Southwest put more than 10 million seats on sale. And Song, Delta's discount venture, is even offering a promotion for an electric guitar or iPod with two or three round trips.
In addition, two new low-fare carriers began operating this summer, fueling further competitive pricing: Ted and Independence Air.
Major carriers have been forced to match the lower fares because the consumer has spoken, say industry experts.
"The passenger won't pay high ticket prices anymore. That's the long and the short of it," says David Stempler, president of the Air Travelers Association in Washington. "Those low fares on the Internet have become what we call a reference fare. People may be willing to pay $40, $50, or even $80 more for better times and nonstop flights. But they aren't going to pay $500 more."
This new traveler mentality is a problem for major carriers whose cost structure is based on higher fares. Many analysts believe that more will file for bankruptcy and that the low-cost carriers - which already command a quarter of the market share - will continue to gain strength.
Already there is evidence of a shift: Major carriers are scheduled to receive 30 new aircraft by 2007, while the low-cost carriers are scheduled to receive 350 over the next three years.
Usually, airlines lower fares at the end of summer when travel tapers off. But this year, those cuts have come much earlier and have included a much bigger choice of destinations.
Professor Gritta believes part of the reason for the early price cuts may have to do with the economy. Airlines, he says, offer "teaser fares" to increase sales if they believe the economy is slowing down - and there have been some signs of that recently. "Carriers use it as a sort of preemptive strike to spur demand," he says.
It's important to keep in mind that these low fares are very limiting so not everyone can take advantage of them, says Aaron Gellman, a professor of management at Northwestern University's Transportation Center in Evanston, Ill.
Regardless, he says, competition is here to stay.