Delta Air Lines Inc. (DAL), the No. 3 U.S. carrier, said on Wednesday it would cut airfares by as much as 50 percent for domestic flights and scrap its unpopular Saturday-stay requirements in a move aimed at luring customers back to an airline struggling to avoid bankruptcy.
Other features of the plan called SimpliFares include charging $50 instead of $100 to change tickets and declaring that no one-way coach ticket will cost more than $499 and no one-way first class ticket will cost more than $599.
In addition, the company said it would unveil other changes, including improving its delta.com (search) Web site and "revising" the food it serves aboard its flights. The company also said it is redesigning its aircraft cabins to make them brighter and give them all-leather seats.
Analysts said other carriers will have to match Delta's cuts, forecasting a gloomy year for the airline industry.
"We believe the whole airline industry will now have to move in this direction; this will likely hurt revenue in the short run but could be beneficial in the long run," Calyon Securities analyst Ray Neidl said.
Merrill Lynch analyst Michael Linenberg said industry-wide fare cuts could cost airlines as much as $3 billion a year.
Delta shares fell 54 cents, or 7.39 percent, to $6.77 while Continental (CAL) fell 91 cents, or 7.46 percent, to $11.29, and American Airlines (AMR) shares plunged 79 cents, or 7.89 percent, to $9.21.
Delta, the nation's No. 3 airline, is capping one-way domestic economy fares at $499 and one-way first-class fares at $599 in an effort to compete with low-cost carriers.
The Atlanta-based airline — plagued by high costs, weak revenue, high fuel prices and rising competition from discount carriers — had been expected to make the announcement since early this week.
The changes wouldn't mean cheaper flights for everybody. The main change would be a reduction in the sometimes-great fluctuations that different fliers pay.
The airline seemed confident the new fares would have a significant effect in the industry. A two-page ad Delta took out in the Wednesday edition of The Atlanta Journal-Constitution declared in big letters that "today one airline is changing everything."
In August, Delta rolled out a program in Cincinnati to test the discounted fares and the elimination of the Saturday-night stay requirement.
Talking about those changes last month, chief executive Gerald Grinstein said Delta has to do a better job giving customers what they want — low prices. "One of the goals we have is to gain that trust," Grinstein said.
Delta averted a bankruptcy filing in October when its pilots agreed to accept lower-cost employment terms. Three major airlines — including UAL Corp.'s (UAL) United Airlines — are currently under bankruptcy protection.
There has been speculation that other carriers would be forced to match Delta's changes, hurting industry revenue this year.
Delta's action got a chilly reaction from at least one rival. Northwest Airlines Corp.(NWAC), the fourth-largest, said fare cuts of the type Delta is implementing will hurt the industry.
"Northwest believes that 'fare simplifications' of the sort being described are revenue negative," the company said in a statement. Northwest expects that such an initiative, if it becomes general, would immediately adversely and significantly affect industry revenues."
Reuters and the Associated Press contributed to this report.