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American Nixes Fare Hike

August 2, 2004

FORT WORTH, Texas (AP)--American Airlines has given up on proposed fare increases after some carriers declined to match the hikes on all their seats.

Instead, American decided to follow United Airlines in making a new round of price cuts on some routes.

The fare hike plan began late last week when American, a unit of AMR Corp. (AMR) and the largest U.S. carrier, said it was raising prices on domestic flights by $5 one-way and $10 on round trips.

American said it needed to raise fares because of the high price of jet fuel.

By the weekend, many other carriers, including Delta, Northwest, Continental and US Airways, had gone along. However, some applied the increases only to cheap discounted fares and others didn't match American on all routes, leaving a hodgepodge of increases across the country.

In addition, some low-cost carriers, including the two largest -Dallas-based Southwest and New York-based JetBlue -declined to raise their fares. Analysts questioned whether such an increase could stand, and in the end, it couldn't.

On Sunday, American pulled the plug on its increase except for "a few random routes" and instead moved to match a sale introduced Sunday by United, the No. 2 U.S. carrier, a spokesman said.

"It's a highly competitive industry and we just can't afford to be far out of line with our competitors," said the American spokesman, Tim Wagner.

Other carriers were expected to follow suit by cutting fares on routes they share with United.

United -which is in bankruptcy protection and has stopped funding its pension obligations -said it was cutting prices on tickets sold through Aug. 13 for U.S. travel through Dec. 15 and international travel, with varying dates.

The airline gave examples, including $238 Chicago-Los Angeles and Washington-San Francisco round trips, and $198 New York-Los Angeles round trips.

Most U.S. airlines have been losing money for three years, although Southwest and JetBlue have been profitable. American's parent, AMR Corp., eked out a narrow profit from April to June. Executives have complained about their inability to raise prices to offset the rising cost of fuel, which is an airline's second-largest expense after labor.

In midday trading, AMR shares fell 20 cents, to $8.23; Delta shares dropped 11 cents, to $5.08; Continental shares dipped 19 cents, to $8.80; shares of Northwest slipped 10 cents, to $8.53; Southwest shares fell 23 cents, to $14.24; and JetBlue shares dropped 86 cents, to $22.95.

 

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