Southwest reduces highest fare 25%

Cut from $399 occurs mostly at Chicago, BWI

more pressure on rivals

August 23, 2002|By BLOOMBERG NEWS

DALLAS - Southwest Airlines Co. reduced its highest one-way ticket price 25 percent yesterday to $299, as the profitable discount carrier seeks to widen its advantage over larger U.S. rivals that are trimming service to stem losses.

The cut from $399 applies even to tickets bought at the last minute and is aimed at attracting more business passengers, the airline said. Tickets bought just before travel often are purchased by business travelers and carry higher fares. Southwest said its highest fare applies to some seats on 36 percent of its routes and is paid by 1.3 percent of passengers.

The $399 fares largely were in Chicago and at Baltimore, where Southwest, the largest carrier at Baltimore-Washington International Airport, will soon launch nonstop service to California.

On some routes where it will have the $299 fare cap, rivals charge as much as $1,181 one way, Southwest said.

Southwest is the only major U.S. airline to remain profitable since the Sept. 11 attacks worsened a travel slump and produced first-half industry losses of more than $3.8 billion. Rivals including AMR Corp.'s American Airlines and Continental Airlines Inc. announced service cuts this month to reduce costs.

The biggest discount carrier "is basically trying to win over business travelers who have never flown Southwest," said Nick Redfield, an analyst at Banc One Investment Advisors, which managed about 2.2 million of the airline's shares as of June.

Southwest's move puts more pressure on rivals after US Airways Group Inc. filed for Chapter 11 bankruptcy protection this month and United Airlines' parent, UAL Corp., said it might have to file unless United can cut costs and get a U.S. loan guarantee. Businesses haven't increased travel spending, a major source of income for carriers such as American.

American, the world's largest airline; Delta Air Lines Inc., the third-biggest in the United States; No. 4 Northwest Airlines Corp.; and No. 5 Continental said they will match Southwest's $299 fares on routes where they compete.

"We are playing to our strength, which is our low cost, and trying to do it in a way where we think we have a real good opportunity," Chief Financial Officer Gary Kelly said in a conference call. "We see this as a way to get a lot of business travelers interested in Southwest who might not be thinking of us right now."

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