Airlines Rescind Fare Increase After Northwest Declines to Join

Strategic Insights -

Major U.S. airlines rescinded their recent attempt to raise business and leisure fares after Northwest Airlines declined to follow suit, marking the ninth time this year that airlines have tried and failed to increase prices. The airlines, including American Airlines, Delta, and Trans World Airlines, had raised fares as much as 4 percent for leisure and 3.5 percent for business, hoping to capitalize on strong travel demand. However, with Northwest's decision not to join the price increase, the effort ultimately fell apart.

Key Takeaways:

  • This is the ninth time this year that major U.S. airlines have attempted to raise prices, with most earlier attempts being thwarted when Northwest Airlines declined to follow suit.
  • Leisure fares rose by as much as 4 percent and business fares by as much as 3.5 percent, in an attempt to capitalize on strong travel demand.
  • Northwest's decision not to raise its prices may have been influenced by a U.S. government suit to block its bid for a controlling stake in Continental Airlines.
  • Airline analysts had been skeptical about the success of the price increase, citing concern about a potential economic slowdown.
  • Major U.S. companies have already begun to tighten their travel budgets, according to the National Business Travel Association.

Statistics:

  • Airlines raised fares by up to 4 percent for leisure and 3.5 percent for business.
  • This is the ninth time this year that major U.S. airlines have attempted to raise prices.
  • Northwest's shares rose 94 cents to $24.12 1/2.
  • TWA shares rose 6 cents to $5, while AMR shares fell $1.44 to $34.87 1/2.
  • Delta shares fell $1.37 1/2 to $97, while UAL shares fell 87 1/2 cents per share to $60.50.

Sources:

  • Best Fares magazine
  • National Business Travel Association
  • Wall Street Journal