Delta, American try last-minute fare experiment By Marilyn Adams and Dan Reed, USA TODAY Frequent flier Eric Peterson is thrilled that airlines like Delta and=20 American are finally cutting some of their steep, last-minute fares to woo= =20 back customers like him. He just hopes they use an ax, not a chisel. Last=20 month, Peterson, an Atlanta-based software architect, had to book a=20 last-minute trip to see a client in Albany, N.Y., and Delta's round-trip=20 fare was $1,200. The boss said no. So Peterson found a $400 flight to=20 Newark, N.J., where he rented a car and drove three hours to Albany.=20 Although Delta is testing a new 20% discount on some of its most expensive= =20 tickets in many markets, "A 20% decrease is hardly perceptible on a fare=20 that's outrageous to begin with," says Peterson, whose software company is= =20 clamping down on travel costs because sales are flat. Besides, Delta hasn't= =20 brought its new test fares to hub airports like Atlanta. Still, its=20 experiment, and one by American Airlines, may be the start of the next big= =20 thing in business fares. After decades of employing byzantine fare=20 structures that charged their best customers =97 business fliers =97=20 heart-stopping prices, traditional airlines may be on the brink of rolling= =20 out changes. The goal: attract business fliers back to higher-fare tickets= =20 that can be booked close to the trip date with fewer restrictions than=20 leisure-fare tickets carry. American said last month that it's testing a simplified, four-fare=20 structure in two dozen major markets, including 12 routes into and out of=20 Dallas/Fort Worth, its home base. The four classes include walk-up, the=20 most expensive coach fare; 14-day advance purchase; 30-day advance; and=20 first class. Walk-up, which used to mean a fare available the day of flight or a couple= =20 days before, now extends to 13 days before a flight under American's new=20 definition. American has knocked 40% off old walk-up fares on test routes=20 and made them refundable. At the same time, the cheapest fares in the=20 American test markets, those bought 30 days in advance, appear to be 10% to= =20 15% above recent fare-sale levels. The gap between high and low fares has=20 narrowed. "We believe this new structure provides the value, simplicity,=20 price and flexibility that today's travelers are demanding," says American= =20 spokesman Tim Kincaid. "This is definitely a very big deal," says fare=20 analyst Bob Harrell of Harrell Associates in New York. "You don't have to=20 be a travel manager to notice when American cuts its walk-up fares by 40%."= =20 American is testing its new fares on routes where it's the dominant=20 carrier, minimizing the likelihood of a fare war. Delta, meanwhile, is conducting a broader test, offering lower business=20 fares in hundreds of less-busy routes across its system =97 such as Boise to= =20 Portland, Ore.; and Richmond, Va., to San Diego. The routes don't touch any airline's hub airports, a move designed to avoid= =20 competitive backlash. Delta's test has nine levels, which include=20 seven-day, 10-day and 14-day advance-purchase fares. None is refundable.=20 Unrestricted walk-up fares in the markets aren't part of the discount test.= =20 But new fares aimed at business travelers are about 20% lower than Delta's= =20 unrestricted fares, says a report by J.P. Morgan analyst Jamie Baker. And=20 they appear to have fewer restrictions, like a Saturday night stay, than=20 leisure fares usually do. After the new fares were introduced, Delta saw a= =20 double-digit increase in revenue on those routes, Baker's report says. Last= =20 week, Delta added 1,500 markets to its initial test group, bringing test=20 fares to 2,000 markets total, about 2.5% of its system. Citing federal=20 antitrust restrictions, neither airline will discuss its test results or=20 next steps. But analysts and travel managers welcome the hints of reform. "Simplicity and value have been lacking" in airline pricing, Baker says.=20 "I'm more impressed with what American's doing right now because it's=20 simpler and reduces the top end (of fares) by a significant degree." He=20 expects American or Delta to roll out a simplified fare structure=20 systemwide next year. Signs of customer revolt have been clear: American Express Corporate=20 Services, for example, saw use of discounted, non-refundable fares by its=20 business clients jump to 40% during the first half of this year from 25% in= =20 2000, says spokeswoman Melissa Abernathy. That's because the average=20 non-refundable ticket price was $440 round trip, vs. the average refundable= =20 fare of $1,144. The defection of business travelers to discounted tickets=20 or low-fare airlines is costing the traditional airlines billions in=20 revenue. What American is doing with its fare testing is "similar to what=20 we're doing: trying to make things more convenient and simple for=20 customers," says J.C. Penney travel manager Mike Spooner. Penney's is based= =20 in suburban Dallas, American's home base. "We wish them luck" in their=20 testing, says Spooner. The risks for American and Delta are potentially=20 huge. The new, lower business fares might not attract enough additional=20 passengers to offset the revenue lost by cutting prices. That could cause=20 additional losses in a year when the industry already is expected to lose=20 more than $7 billion. Or competitors, either traditional carriers or discounters, could undercut= =20 the new fares. That likely would force American and Delta to abandon the=20 new fare structures, leaving business travelers again having to choose=20 between paying for a high fare for flexibility or a low fare with tight=20 restrictions. All the talk about cutting business fares sounds familiar to= =20 America West. In March, the Phoenix-based carrier restructured business=20 fares systemwide, cutting refundable, walk-up fares and loosening=20 restrictions on business fares bought in advance. Other major airlines=20 quickly retaliated, matching or undercutting America West's new fares. Even= =20 so, the airline says the fare changes are driving traffic and revenue=20 growth. "Business travelers are demanding changes," says America West=20 spokesman Jim Sabourin. "Other airlines are beginning to get the message." 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