Airfares drop as carriers scramble to fill seats

Ticket prices are at their lowest levels in 10 years as airlines cope with the effects of an economic downturn.

Call it the season of the perpetual sale.

All summer long, as airlines have struggled to entice back reticent business travelers in this economic downturn, ticket prices plummeted.

This week alone, Northwest announced it was slashing selected fares 40 percent, and the other majors, not to be outdone, quickly followed suit. But don't race to the ticket counter just yet. Many airline analysts predict that prices will drop even further after the Labor Day weekend.

Not since 1992, when the country was coming out of the last recession, have airlines offered up their tickets at such bargain-basement prices.

"Right now, John Q. Public is going to win and John Q. business traveler can win if he plays his cards smart," says Tom Parsons of Bestfares.com. "The airlines have a lousy hand right now. They've got a lot of empty seats."

The primary reason for the turn of events: Business travelers, who make up only about 10 percent of the major carriers' passengers but account for 40 percent of their revenue, are staying put in their offices. If they do travel, more and more are taking the time to find a cut-rate fare.

That's caused a dramatic drop in revenue. Some analysts are predicting industry-wide losses of more than $2 billion dollars this year.

Added to the major carriers' woes is the success of a number of low-cost carriers like Southwest, JetBlue, AirTran, and ATA. While the airline industry boomed in the late 1990s, they were able to make inroads into some of the major carriers' territory. They did it, in part, by changing the map and flying into smaller airports near the major carriers' hubs. ATA, for example, is giving United a run for its money by flying not out of O'Hare, but nearby Midway Airport in Chicago.

"It looks like the big guys may be going after some of the low-cost airlines," says Alan Bender, an aviation economist.

"United seems to be very aggressively cutting fares and lessening restrictions out of O'Hare, which seems to be an attack on ATA," he adds.

The bargains that the low-fare carriers have served up are having another effect: They're causing some of the public to yawn at the majors' price-cutting frenzy. For instance, Mr. Parsons points out, a Northwest ticket from Boston to San Diego costs $458 during this vaunted fare sale. But if someone is willing to drive 45 minutes to Manchester, N.H., which is served by both Northwest and Southwest, passengers can get to San Diego for $158.

"You might as well take the family, get a limo, and have a party on the way. You'd still be better shape," says Parsons. "[But] we have to figure out how to protect these low-cost carriers, because they're the only ones keeping the big airlines honest - there's a lot of hype around this fare sale."

Still, for people who live in parts of the country that aren't close to an airport with a low-cost carrier, this 40 percent sale could bring some relief, because even their so-called discounted fares remain high.

"That's an indication the airlines still haven't faced the reality of the situation they're in," says Edward Hasbrouck, author of the "Practical Nomad" series of travel books. "If they're going to operate with full seats in the coming winter, they need to lower their normal fares, instead of having these perpetual sales."

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