In rare move, Southwest cuts airfares, Delta boosts them
In an unusual move, Southwest has slashed some fares while Delta has raised them, a signal that airlines may be starting to resist the lockstep price matching that has long defined the industry.
Last week, Southwest cut one-way domestic fares for trips booked within a seven-day window by $5. Meanwhile, Delta increased some of those last-minute fares, often purchased by business trekkers, by $5 one way.
Both moves were notable, fare watchers say, because, outside of a short-term sale, airlines seldom slash fares. And it’s also rare for a carrier to boost ticket prices at a time when another airline, particularly low-cost giant Southwest, is lowering them.
"The interesting thing ... is that generally airlines tend to go in lockstep with airfares," says Rick Seaney, CEO of the price-watching site FareCompare.com. “But they don’t seem to be in lockstep at the moment."
In regard to Southwest's price cut, Seaney said that in the last decade “I can count on my fingers the times that something like this has occurred.'' He added that such price reductions were common during the recession, but not now when passenger demand is strong and airlines have become disciplined in not flying more seats than they can fill. “Most of the airlines are pushing to take their base airfares higher."
Southwest posts record first-quarter profit
In an investor note on Friday, JPMorgan analyst Jamie Baker called Southwest’s fare cut “a type of reduction we can’t recall any airline of size ever taking.’’
But Seaney noted that a key reason pricing patterns may be changing is because airlines' overlap on routes is "so insignificant."
Though most of the larger carriers compete with each other in major hubs, such as Los Angeles and New York, Seaney says that in the wake of several industry mergers, a single carrier is more likely to dominate a smaller market, such as Omaha or Moline, Ill., giving them the freedom to price flights according to whatever the market will bear vs. what their peers may charge.
While industrywide price hikes tend to falter if Southwest fails to match, it was the low-cost carrier’s price cut last week that stood out. Most airlines matched Southwest’s fare reduction on routes where they competed with the carrier. But Baker applauded Delta moving some of its prices in the opposite direction.
Delta's new CEO: ‘This airline has never performed better’
"We have long criticized the industry for not being more creative with its pricing efforts," Baker’s note read. “Despite well-staffed pricing departments teeming with MBAs, past precedent suggests airlines are unwilling or unable to raise or lower fares except in unison. Historically, pricing discrepancies have rarely been tolerated. But what if this is beginning to change?"
Instead of trying to match each other’s cheapest fares, airlines should charge based on the distinctions they offer, whether it’s better on-time service or in-flight access to the Internet, Baker said. "A seat is a seat is a seat may have been the industry’s onetime pricing mantra, but such a claim may increasingly ring as hollow over time as ‘a phone, is a phone, is a phone.’"
Seaney noted that Southwest’s fare cut amounts to the airline basically rolling back previous hikes it implemented earlier this year. "So it wasn’t like they’re completely altruistic about dropping prices,'' he says.
Still, some passenger advocates were pleased with the cheaper tickets.
"It is always a good thing for consumers when a major airline cuts their airfares,'' says Charlie Leocha, chairman of the fliers advocacy group Travelers United. "This is a clear win for consumers, except at airports where Delta holds a commanding market share.''