Delta reluctantly lowers fare increase
The airline removes the added fee after rivals refuse to play ball.
Delta Air Lines' (DAL) latest fare increase didn't fly with the rest of the industry. Competing airlines refused to adopt similar hikes, leaving the carrier with little choice but to roll back its proposed increases.
Delta targeted those fare increases to customers who fly the most: business travelers. This week, the company tried to raise roundtrip fares by $4 to $10 for tickets sold within seven days of departure, the Associated Press reports.
"The increase included seats in first class, instant-upgrade and refundable economy-class fares," the report said. "Those tickets are often bought by business travelers; vacationers prefer to get lower fares by buying seats further in advance."
Airlines have been attempting to up ticket prices throughout 2012, with Delta's latest effort adding to a batch of unsuccessful increases. However, it appears that inexpensive carriers such as Spirit (SAVE) may have the right idea when it comes to offering low prices.
The airline saw revenue passenger miles -- the number of miles flown by paying customers -- rise 16.7% year over year in July. Analysts from Citi noted that Spirit's third quarter appeared to be off to a good start, and they remained encouraged by Spirit's solid earnings growth and best-in-class capabilities.
In this economic climate, it hardly makes sense that Delta would willingly position itself as one of the most expensive means of travel. The company recently reported disappointing international passenger traffic throughout the month of July, prompting Goldman Sachs to lower its price target on Delta from $9 to $8.30 last week.
"The soft July traffic data affirms our view that earnings will disappoint in 3Q," Goldman Sachs analysts said in an August report, noting that their third-quarter earnings estimate for Delta was 15% below consensus. "We expect earnings downgrades to come, as the near-term outlook for [passenger] traffic looks more challenging than during 1H12."
Delta's short-lived ticket price increase may have been put in place to offset what will likely be a poor third quarter for the company.
United Airlines (UAL) is also interested in hiking fares, and attempted to do so earlier this month. Will the carrier take note of Delta's struggle and hold off for the time being? Perhaps.
Remaining on the sidelines, Southwest Airlines (LUV) hasn't announced any immediate plans to boost ticket prices. In fact, rather than match this week's price increase, Southwest promoted a new sale that surely did not reflect well on Delta. The company's nationwide sale boasts fares starting at just $69 for a one-way trip.
Delta traded down 2.5% Thursday to $9.03, while Southwest was up less than 1% to $9.08.
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