It is easy to say that JetBlue’s (NASDAQ: JBLU) $10 two-day ticket promotion is simply a gimmick to celebrate the carriers 10th anniversary, but it has dropped other fares to $44. The pricing will likely show that airlines can sell-out their seats, even if they lose money on each one. The temptation to gain market share has returned and price wars may be the way that carriers use to buy customer loyalty.
Price wars are as old as the modern airline industry, and they have sucked profits out of many carriers at the time when the carriers can least afford it. Most US carriers have multi-billion debt loads and have operated in the red for two years because of the high fuel prices in 2008 and low passenger traffic last year. As oil has risen over $80, the specter of high fuel costs has returned.
The last two years will have produced two airline mergers:Delta (NYSE: DAL) -NWA and Continental (NYSE: CAL)- (NASDAQ: UAUA). Both deals were driven by the prospects of lower costs and larger networks. They also caused labor unrest and customer satisfaction problems that always go with merging two reservation systems.
Continental and United will want to please customers who will become angry with reservations glitches and service interruptions that often come with strikes that go with mergers. The easiest way to keep customers is price. That means lower prices are almost certainly in the offing, and with them bigger losses.
Douglas A. McIntyre