Against the background of weak passenger demand, especially in the key corporate market, US majors are starting to bring down fares in a challenge to their low-cost competitors.

Since early summer, both Delta and United Airlines have set pricing policies at their home Atlanta and Chicago hubs designed to make them more competitive with low-fare rivals. In late June, on service out of Atlanta to major cities like Dallas, New York and Washington, Delta set four levels of fares, both with and without advance purchase requirements, that are available either on a one-way or return trip basis. According to Jamie Baker, airline analyst at UBS Warbug, these fares substantially eliminated "Airtran's previously unchallenged pricing advantage".

Similarly, in August United sharply reduced fares on select flights out of O'Hare, to major cities like Los Angeles, Washington and New York, and also eliminated its Saturday night stay requirement. These rates make United more competitive with low-fare rivals Southwest Airlines and American Trans Air, which have attracted business travellers to their service out of Midway.

Baker predicted that if United's new pricing structure succeeds, it might well impose it in Denver, where it faces low-fare competition from Frontier.

Meanwhile, American Airlines and Delta both set short-term fare sales, geared to the leisure travel market, that showed their increasing reliance on the internet. Delta announced discounted advance purchase fares throughout its system, good for travel through 31 October, that it reduced an additional 20% with purchase on Delta's web site. This internet discount is 15% larger than what carriers traditionally offer to travellers as an incentive to buy online.

For one day in August, American put all of its domestic flights on sale; these rates were valid through 13 December and were only available online.

Source: Airline Business