American Airlines announced last week that in 2016 it will implement a new pricing structure with cheap, no-frills tickets for sale in certain cities like Dallas and Orlando where discount carriers are strong.
Why is American cutting fares? Because it has to.
“Low-cost carriers are expanding pretty rapidly,” said George Hobica, president of airfarewatchdog.com. Low-cost carriers like Spirit and Frontier are giving American – and a lot of other carriers – a run for their money. “You can fly between Chicago and 10 different cities for $40 each way,” Hobica said. “It costs more than that to get to the airport by Uber.”
But the airline isn’t cutting prices everywhere, just where there’s competition.
“And they’re increasing fares when they believe they can,” said Robert Mann, an airline industry analyst with R.W. Mann & Company Inc.
American’s fare reductions are also a product of the decline in oil prices.
“The relief offered by a 40 percent reduction in fuel prices is substantial,” Mann said. “You can compete at very, very low prices and make money.”
How long this strategy — and lower fares — will last is another matter. This could be a long-haul move or a stunt to attract customers and make low cost carriers say uncle.