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Southwest, Delta Tangle Over Whether to Cut or Raise Fares

No one should blame consumers for being perplexed by airfares -- even the airlines themselves can seem confused at times.

Southwest Airlines caught rivals and Wall Street by surprise when it cut many U.S. fares by $5 each way. The reduction this week applied to tickets bought within seven days of departure, which are usually favored more by last-minute business travelers than vacationers.

Meanwhile, Delta Air Lines was busy raising fares on domestic routes by $5 each way. And it did not match Southwest's lower fares where the two carriers compete, a Delta spokesman said Thursday.

Spokesmen for American and United said that their airlines matched the Southwest reduction on routes where they overlap with Southwest but did not match Delta's fare hike.

U.S. airlines often match one another on fare hikes, but increases can be rolled back if a key competitor doesn't go along. Even when they raise base fares, airlines often water down the effect by running frequent sales.

And airlines adjust fares constantly based on demand. That is why consumers often see one price one day and a different price the next day for the same flight.

Southwest's decision to cut base fares was particularly eye-catching. JPMorgan analyst Jamie Baker, who tracks fares, said he could not recall such a "plain vanilla fare decrease by a large airline." Baker said he was "troubled" because the decrease unwound a fare hike from February.

Airline stocks have fallen in recent days over renewed concern that average fares, which began dipping early last year, will continue to drop throughout 2016. Some analysts blame the major airlines for matching prices set by so-called ultra-low-cost carriers or ULCCs such as Spirit and Frontier, which charge more fees on top of their no-frills service.

David Cush, the CEO of Virgin America, said that airlines might eventually stop pricing in lockstep. He said that airlines can charge higher fares if they offer a better flying experience than rivals or operate a nonstop against a competitor's connecting itinerary -- but are sometimes afraid to do so.

"The airlines believe, rightly or wrongly, that they have to compete on price even though they tend to have a product advantage to a lot of the ULCCs," Cush said in an interview.

Copyright AP - Associated Press
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