Delta lifts fare limit on U.S. flights

$100 increase is blamed on skyrocketing fuel costs

July 15, 2005|By COX NEWS SERVICE

ATLANTA - Delta Air Lines raised the price limit on its so-called Simpli-Fares by $100 yesterday, noting relentlessly high fuel costs, which are undermining the ailing carrier's recovery efforts.

Delta's top price on domestic fares rose from $499 to $599 one way, and to $699 in first class. But other elements of last winter's fare-cutting overhaul, including no weekend-stay requirements, remained in place.

The company's languishing shares climbed almost 18 percent on the move, rising 61 cents to $4.05.

Delta said about 6 percent of its fares were sold at the top prices, which typically apply to short-notice bookings by business travelers.

Airfare guru Terry Trippler, of, said Delta's higher fare limit wouldn't affect many travelers initially, but added that it reflected a general trend toward higher prices as carriers battle sustained high fuel costs. "I would not be surprised to see airfares 20 percent higher next summer," he said.

Delta said it had to raise fares because of "volatile and unprecedented increases in jet fuel costs," which it previously estimated would add about $1 billion to its fuel bill this year.

In rolling out Simpli-Fares in January, Delta lowered some walk-up fares by as much as 50 percent. It also lowered some fees and removed its Saturday-night-stay requirement on economy fares. Part of the idea was to draw more business fliers, many of whom had defected to discount rivals.

"When Delta launched SimpliFares in January, crude oil was selling at $43 per barrel compared to as much as $61 per barrel in recent weeks," said Delta marketing chief Paul Matsen. "Despite our best intentions to keep the current fare caps in place, we have been forced to find ways to offset this dramatic spike in costs."

Delta has warned that it might have to file for bankruptcy if it cannot offset its higher fuel bill by raising fares or reducing its cash drain in other ways, such as delaying $3 billion in looming pension funding payments in the next few years.

On the latter issue, Delta also said yesterday that 12,000 employees and retirees had petitioned Congress supporting legislation the airline is seeking. The measure would spread pension funding over 25 years, rather than about four years.

Industry analysts welcomed Delta's move to raise its fare limit.

Delta "has finally caved in to reality and is raising fares and caps due to higher fuel costs," said Calyon Securities analyst Ray Neidl.

"You can almost bet the rent" that competitors will match with higher fares, said's Trippler. He said the higher cap was quickly matched by Continental and United, with more carriers likely to follow.

Northwest Airlines had tried twice in recent weeks to lift fares above the limit but had to withdraw its increases when Delta didn't go along. Airlines usually impose broad fare boosts only if all major rivals go along.

When Delta rolled out Simpli-Fares, industry analysts generally hailed the program as a way to boost business travel but said it would initially cost most large carriers hundreds of millions in lost revenues as they were forced to match Delta's moves.

Competition from discount carriers also has pushed fares lower for years, but strong travel demand this summer helped airlines reverse the trend.

Airlines have attempted more than a dozen fare increases since February, mostly with success.

The gap between leisure fares and high-end fares has narrowed drastically this year as a result. The average business fare is down 32 percent from last year, to $386 one way, while leisure fares are up 23 percent, to $127, according to Fulcrum Global Partners analyst Susan Donofrio.

Industry analysts believe strong summer traffic and higher fares have reduced the red ink at Delta and other big network carriers, which begin reporting second-quarter results next week.

Yesterday, discount carrier Southwest Airlines reported second-quarter profit of $159 million, 40 percent higher than a year ago, and higher than Wall Street estimates. Southwest is the only major airline that has fuel "hedging" contracts locking in most of its fuel purchases at previously set prices.

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