Delta Reluctantly Lowers Fare Increase
Traveling is hardly ever a thrilling experience, but Delta (NYSE: DAL) is working to change one small part of that. The airline has lowered some fare increases that were likely to impact those who fly most – business travelers.
According to <http:>the Associated press, Delta dropped a fare increase of up to $10 per round trip - but only after competing airlines refused to instill similar prices. The company just raised the price from $4 to $10 on Monday night for those who purchase tickets within seven days of departure.
"The increase included seats in first class, instant-upgrade and refundable economy-class fares. Those tickets are often bought by business travelers; vacationers prefer to get lower fares by buying seats further in advance," the report said.
Airlines have been attempting to up ticket prices throughout 2012, with Delta's latest effort adding to a batch of unsuccessful increases. However, it appears that inexpensive carriers such as Spirit (NASDAQ: SAVE) may have the right idea when it comes to offering low prices.
The airline that asks customers to "Catch the Spirit!" released July 2012 traffic on Monday, with revenue passenger miles (RPMs) advancing +16.7 percent year-over-year. Citi reported that Spirit's third quarter appears to be off to a good start thus far; the research firm remained encouraged by Spirit's solid earnings growth and best-in-class capabilities.
With props such as these, it hardly makes sense that Delta would willingly position itself as one of the most expensive means of travel. The company recently reported disappointing international passenger traffic throughout the month of July, prompting Goldman Sachs to lower its price target on Delta from $9.00 to $8.30 last week.
"The soft July traffic data affirms our view that earnings will disappoint in 3Q. Our 3Q12E EPS estimate is 15% below consensus. We expect earnings downgrades to come, as the near-term outlook for pax traffic looks more challenging than during 1H12," Goldman Sachs said in an August report.
Delta's short-lived ticket price increase may have been put in place to offset what will likely be a poor third quarter for the company.
United Airlines (NYSE: UAL) is also interested in hiking up traveling fares, as the company attempted to do so earlier this month. Will the carrier take note of Delta's struggle and hold off for the time being? Perhaps.
Remaining on the sidelines, Southwest Airlines (NYSE: LUV) has no immediate plans to boost ticket prices. In fact, rather than match this week's price increase, Southwest promoted a new sale that surely did not reflect well on Delta. The company's nationwide sale boasts fares starting at just $69 for a one-way trip.
Delta closed Wednesday at $9.26, down about .22 percent, while Southwest closed at $9.02, up .11 percent for the day. </http:>
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