The Great Fare War of 2017 will continue for the foreseeable future. Get those cheap tickets while you can, folks. You might never see fares this low again.
American Airlines Group Inc. will “absolutely, positively” match discount fares from low-cost rivals, Chief Executive Officer Doug Parker said, signaling no end in sight for a price war that has knocked down industry shares this summer.
“We price our product to match the competition,” Parker told reporters at a conference in Fort Worth, Texas. “We always have, we always will.”
Airline stocks, already down 18 percent since early July, reversed an early gain after the CEO’s comments. Big airlines such as American, United Continental Holdings Inc., and Delta Air Lines Inc. are competing against discounters with a new no-frills fare class called basic economy, which offers cheaper prices in exchange for fewer amenities. The clash, centered in major airports, is nearing balance, Parker said.
“It’s not equilibrium yet, but it feels like it’s getting sorted out,” he said. “There is a market for ultra low-cost carriers and their product. They’ve proven that. Their financial performance on a margin basis is a lot stronger than ours. But we have an enormous advantage in and out of our hubs.”
American, the world’s largest airline, fell 2.5 percent to $44.19 at 12:21 p.m. in New York. The shares deepened declines after Parker’s comments, which reaffirmed his longstanding views on confronting competitors, suggested continued pressure on fares.
A Standard & Poor’s index of five major U.S. airlines dropped 1 percent after climbing earlier in the trading session. The industry gauge swooned this summer as a fare battle between United and Spirit Airlines Inc. spread to other carriers.
Weaker fares recently prompted some airlines to lower their forecasts for third-quarter revenue for each seat flown a mile, a closely watched gauge of pricing power. Jamie Baker, an analyst at JPMorgan Chase & Co., last week ended his recommendation to buy shares in United, Spirit and American, saying lower ticket prices and higher fuel costs were crimping the industry’s profits.
“We view domestic pricing weakness as self-inflicted,” he said. “There’s certainly no firming of pricing taking place that we can identify.”
©2017 Bloomberg L.P.
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Photo Credit: American Airlines, like United Airlines, is being ruthless in dropping prices to match ultra-low-cost competition. Brendon Thorne / Bloomberg