Airlines seek to stimulate demand with big fare sales

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By Kerry Ezard and David Field

Airlines always hold fare sales in January but this year the sales, in some regions at least, appear to be more aggressive and longer lasting than they have been in the past, as airlines desperately seek to stimulate flagging demand.

In the US, carriers are offering a flurry of sales promotions and even though January discounts are an airline commonplace, these sales are broader than usual. The discounts on offer this year are good for travel as late as June in 2008, the longest-lasting January sales were for travel through to March.

Airline analyst Mike Derchin of FTN Midwest Securities believes carriers are worried by economic uncertainty. "The sales are a sign that the airlines are very concerned about demand as we pass the holidays. They're trying to see what things will be like," he says.

Virgin America announced a fare sale for travel through to 10 June to all of the cities it serves. JetBlue Airways, meanwhile, is offering a sale on fares to more than 40 US destinations for travel by 1 April.

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AirTran Airways is offering a nationwide fare sale with one-way fares starting as low as $39. The fares are for travel through to 20 May, although sales fares for Florida and Puerto Rico travel are only good until 11 March. "We are trying to build business on the books for the winter and spring," says AirTran.

Southwest Airlines put on sale seats for travel by 30 April. American Airlines has a similar window, while United Airlines has a domestic sale for travel to 4 March and for travel to several foreign destinations as late as 30 April. Delta's sale is good through to the end of April as well. American also put seats to London Heathrow on sale with a window of 30 June, plus travel in the usually soft shoulder month of September.

Vaughn Cordle, chief executive of consultancy Airline Forecasts, says: "The fact that Southwest and JetBlue are offering the kind of sales that they are tells you where we are. Traffic is weak, and the economic future is cloudy. Look at load factors at Southwest. They may always have had weak load factors, but they are falling." Southwest's load factor dipped from 69.3% to 67.8% in the fourth quarter and fell from 72.6% to 71.2% for the year.

Cordle adds: "The consumer is different and so is the US economy, with the end of wealth creation in home values and the stock market's wealth destruction."

Europe, too, has seen some heavy January discounting with airlines such as bmi launching its "better for business" sale, which offers discounted fares on flights through to 31 October. However, some believe European carriers have not reduced their fares as much as they could have done.

"I think the airlines could have reduced their prices more than they have done - fuel is down to its lowest levels for a long time and they should all have cut their fuel surcharges," says UK-based travel and hotel industry consultant John Melchior. Adds Chris Tarry, chairman of UK-based consultancy CTAIRA: "There are certainly a number of headline-grabbing fares but in the case of British Airways, how much of this is a real decline over and above the cut in the fuel surcharge, which was meant to be a cost pass-through." Tarry says sales held by airlines such as Emirates, which include special rates that are good for travel until 31 October, appear to be "a genuine dash for cash".

Melchior points out that airline fare sales are normally held at this time of year because "January is traditionally the largest booking month for holiday sales", although he adds that "it's slightly different this year with capacity down and airlines having cut routes in preparation for the downturn". Melchior does not see this year's January discounts as having a great impact on demand. "I personally don't think demand will be stimulated too much by fare sales," he says, pointing to the weakness of the pound against the euro. "The currency problem in the European markets will put people off somewhat - it's going to cause a real loss in demand."

The Indian market has seen some aggressive fare sales, particularly from Kingfisher Airlines, which says it slashed airfares by between 21% and 65% on various routes across its network from 1 January. The carrier says that as well as offering discounts on leisure fares, it will also offer "significant discounts to its traditional corporate customer base".

Kingfisher chairman Vijay Mallya says the carrier will "aggressively pursue sales and [market] share, and this will help sustain increased load factors in the shoulder season between February and April".