In an attempt to stimulate high-yield traffic, American and Northwest Airlines began cutting domestic air fares normally purchased by business travellers by as much as 10% last month.

The skirmish, though brief, is the majors' first response to the growing traveller rebellion over fares. Andrew Winterton, vice-president of corporate travel management giant American Express, says: "They were the first majors to attempt to do something about the price differential between business and restricted discounted fares. They cleverly targeted their discounts and reduced the fare discrepancy in a controlled way."

The cuts began when American offered discounts of between 5% and 10% on its unrestricted coach fares and three- and seven-day advance purchase fares to the top corporate travel management companies with which it does business.

Northwest retaliated by matching American's fares on competing routes and offered them through its distribution outlets, including travel agents and its website; it also published them through the Airline Tariff Publishing Company (ATPCO), which distributes air fare data to global distribution systems.

For a week, the two airlines battled with each other, garnering publicity and successively offering further 5% and 10% discounts. Northwest finally retreated and said it would offer the discounts through its various distribution outlets but would not publish them through ATPCO. American then said it would do the same.

Eric Henderson of corporate travel agency Rosenbluth, predicts the airlines' attempts to revamp their pricing structures would succeed only "if the industry thought through ideas rationally."

But the moves address fundamental questions - those of market stimulation and of the widely perceived lack of equity in the fare structure. Winterton says: "Volume needs to be readdressed. Business travellers need to pay less, and leisure travellers need to pay more."

Source: Airline Business