Airline price wars are back, just when carriers cannot afford them. The price of jet fuel is up. Passenger traffic is down.
Southwest (LUV) is offering fare as low as $30 one way on short flights and $90 on longer ones.
Southwest, which has a strong balance sheet, may be able to afford cutting ticket prices to bring in customers. Larger carriers such as American (AMR) and United (UAUA) have huge debt burdens and are actually in the process of raising ticket prices and fees on items including extra baggage to make up for growing losses. A prolonged period of having to match low fares from discount carriers could drive the legacy airlines closer to the bankruptcies some investors already fear.
According to USA Today, Tom Parson, CEO of BestFares.com said “We haven’t seen $30 fares in at least 15 years.”
The industry has a multi-decade habit of cutting its own throat. Once airlines cuts prices to bring in traffic to fill unfilled seats more and more carriers match these to keep their customers. The cost of low fares when combined with low passenger loads undermines revenue. A carrier or two goes bankrupt and then they drop fares more to push up sales to get out of Chapter 11.
The recession is damaging airline prospects. A fare war will finish them off.
Douglas A. McIntyre
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