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Delta raises cap on most expensive fares

Delta Air Lines Inc., the nation’s third largest airline, said Thursday it is raising the cap on its most expensive fares by $100 because of persistently high fuel costs.
/ Source: The Associated Press

Delta Air Lines Inc. blamed persistently high fuel costs Thursday as the nation’s third-biggest carrier raised the cap on its most expensive fares by $100, a move that was quickly matched by several rivals. Airline stocks rose on the news.

Atlanta-based Delta boosted the cap on one-way walk-up fares to $599, up from $499, for economy class and to $699 for first class. The move comes six months after the company announced a ticket price overhaul designed to draw in more business travelers.

The adjustment affects full-fare walk-up and some three-day advance purchases. United Airlines and Continental Airlines matched the move, and other rivals said they were studying it.

“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 Paul Matsen, Delta’s chief marketing officer. “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.”

Following the nationwide launch of Delta’s fares program in January, other major carriers lowered their most expensive fares as well.

Other airlines follow
Industry expert Terry Trippler, who runs a ticket fare Web site called, said Thursday that he expects other airlines to hike their one-way fares following Delta’s changes. “You could almost bet the rent on that one,” Trippler said.

He was right, with Houston-based Continental and United, a unit of Elk Grove Village, Ill.-based UAL Corp., doing so within hours of Delta’s announcement.

American Airlines, a unit of AMR Corp. in Fort Worth, Texas, and Northwest Airlines Corp., based in Eagan, Minn., are each studying Delta’s fare change, spokesmen said. Northwest had twice before tried to raise fares above Delta’s cap, by $50, but failed in being able to maintain the increase.

Delta spokesman John Kennedy said the SimpliFares program has helped draw in more business customers over the last several months, though he didn’t have any hard numbers. He said that despite the changes being made Thursday, there are still many benefits to the program.

“The cap was merely part of the package so that people would know that they would never travel for more than this amount, and we’ve simply adjusted that,” Kennedy said.

He also noted that the sales of full walk-up fares and some three-day advance purchases account for less than 6 percent of tickets the airline sells. “We had to be realistic here,” Kennedy said.

Delta declined to say how much its one-way fare cap increase will generate in additional revenue.

The carrier is continuing to offer the fares without a Saturday-night stay-over requirement. It also is keeping its reduction of most special service fees to $50 and 1,000 bonus miles for tickets purchased on the company’s Web site.

Cutting costs
Delta has been trying to cut costs to avoid bankruptcy, but high fuel costs have caused its losses to continue to mount.

Delta declined to say how much its one-way fare cap increase will generate in additional revenue. JP. Morgan airline analyst Jamie Baker said in a research note Thursday that he estimates only an incremental $80 million of annual revenue production for Delta because of the move, “insufficient to materially affect its Chapter 11 probability.”

“We’ll let others sing the praise of cap-raising,” Baker said. “Frankly, we don’t see what all the fuss is about.”

The fare hike announcement comes a week before Delta releases its second-quarter results. Analysts expect it to record another heavy loss. It lost nearly $1.1 billion in the first quarter and $5.2 billion for all of 2004.

“I think it’s no surprise this is coming just prior to the second-quarter earnings,” Trippler said. “This is showing us Delta has stepped back, taken a deep breath and said, ’We need to make some changes.”’

He doesn’t expect a negative reaction from travelers, who he says have gotten used to higher transportation costs because of ballooning gas prices. “They’re going to have to pay higher prices,” Trippler said.

Calyon Securities analyst Ray Neidl said Delta’s move is not surprising in the face of high fuel prices.

“I just knew they couldn’t resist much longer,” Neidl said. “They’re probably facing reality now about oil prices.”

He said the fare cap increase alone will not keep Delta from bankruptcy, noting that it still needs to raise cash in other ways, possibly by selling some assets.