|Airlines are in for a Long Road This Summer|
|Subject||Pricing Wars Between Airlines are Hurting Profits|
|Topic||Supply and Demand; Elasticity; Price Discrimination|
Price, Competition, Airlines, Costs.
The airline industry as a whole is anticipating a brutal traveling season later this summer, as it faces increased fuel costs, increased operating costs, and increased competition from low-cost carriers. Delta Airlines has already announced that it will lose $387 million in the first quarter of 2004, and the industry as a whole could amass losses exceeding $1 billion for the first quarter. As a response, Delta is seeking a 30% cut in benefits and salaries from its pilots to reduce its costs. Further, jet fuel prices have been increasing significantly, and every $0.01 increase in fuel costs the industry approximately $180 million.
Competition from low-cost carriers such as SouthWest and Song Airlines,
is also hitting major airlines hard. As a result, while airlines would
like to raise prices to compensate for increased costs, competition is
preventing them from doing so. Travelers are increasingly price-sensitive,
and therefore are likely to switch to lower-priced fares even if they
have to sacrifice amenities such as onboard snacks and legroom. Even business
travelers, long considered a high revenue segment of the market, are moving
away from frequent-flyer programs and booking flights with the cheapest
fares on the route.
(Updated June, 2004)
|Source||Micheline Maynard. "Airlines are Looking at a Long, Hot Summer." The New York Times. 15 April 2004.|
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