Southwest fare cut pressures competitors

In a bid for more business travelers, Southwest Airlines Co. announced Thursday that it was cutting its highest fares by 25 percent, forcing major airline competitors to match the price cuts.

It comes as Southwest also is preparing to expand its service to include longer-distance flights. The moves by the money-making Southwest -- which traditionally has focused on shorter trips and leisure travelers -- is occurring at a time when other airlines are on the ropes financially and cutting their fleets, workforces, flights and services in an attempt to avoid even larger losses.

"Southwest sort of put its thumb to its nose and went 'Phttth!' to the industry," said Henry Harteveldt, a travel analyst at Forrester Research Inc.

'Well-prepared'

"Financially speaking, we are well-prepared for the economic storms besetting the airlines," said Gary Kelly, Southwest's chief financial officer, in announcing the fare cut.

The cut covers only those prices paid by about 1.3 percent of its customers.

While Southwest had earnings of $123.7 million in the first six months of the year, the industry as a whole lost more than $3.8 billion on top of more than $7 billion in losses in 2001.

The losses helped push US Airways Inc. into bankruptcy and have prompted United Airlines Inc. to say it may be forced into bankruptcy as well. Other airlines -- including American Airlines Inc., which plans to cut 7,000 jobs -- have announced major capacity cutbacks to try to improve profitability.

"We are focused on improving our customer service, rather than considering other drastic choices, as some in our industry face," Kelly said.

Attacking other carriers

"This is really attacking the last underpinning of the major network carriers. That's what this is all about," said Clark Onstad, a former airline executive.

Most of the competition by low-cost airlines such as Southwest has been for customers on flights of 400 miles or fewer. But JetBlue Airways Corp., a new low-cost carrier, is operating transcontinental flights in competition with the major carriers, and Southwest also is expanding its long-haul flights. For instance, in September, Southwest will begin offering nonstop flights from Baltimore Washington International Airport to Los Angeles.

Onstad noted that Southwest has purchased new versions of the Boeing 737 which are suitable for longer flights.

Southwest is not only challenging the larger carriers in longer-haul markets, but also signaling to JetBlue that it will be aggressive about not allowing the newer carrier to get out ahead, Harteveldt said.

Most of the flights on which Southwest charges its highest one-way fare -- previously $399 and now $299 -- were on so-called unrestricted walk-up fares for longer flights, such as Seattle to Fort Lauderdale, Fla. Unrestricted walk-up fares have no requirements for advance purchase or Saturday night stay-overs and most often are bought by business travelers.

Expanding customer base

Other fares that are more than $299 are being reduced as well, but not as significantly. For instance, unrestricted last-minute tickets from BWI to Las Vegas dropped from $309 to $299, and tickets from BWI to San Diego, Portland, Ore., or Seattle are dropping from $322 to $299.

The move should help Southwest expand its customer base to include more business travelers, according to analysts. Other airlines, including American, US Airways, Delta Air Lines Inc. and Northwest Airlines Inc., immediately announced that they would match the fare cuts on walk-up fares on routes where they compete with Southwest.