AIRLINES Revenue for major carriers continues to nosedive

Cheap airfares from discount carriers are the primary reason for the drop in profits.
KNIGHT RIDDER NEWSPAPERS
The cheap fares that have devastated the major airlines are unlikely to rise anytime soon, analysts said Wednesday -- a trend that could mean continued struggles for the troubled industry.
Bargain-basement airfares have hurt the big carriers far more than the drop in passenger traffic in recent years, according to a new analysis of airline ticketing data. The data were compiled by Sabre Airline Solutions, the consulting arm of Sabre Holdings, an airline ticket-distribution company based in Southlake, Texas, that processes 50 percent of airline industry bookings.
Industry observers pay close attention to the group's findings because it has access to Sabre's booking data.
Intense competition from discount carriers like Southwest and AirTran is likely to keep the lid on fares for the foreseeable future, said Steve Hendrickson, Sabre Airline Solutions' vice president of consulting.
"We have a lot of [airlines] selling their seats below cost," Hendrickson said during a briefing with reporters and analysts Wednesday.
Decline in traffic
The decline in overall passenger traffic accounts for just about one-third of the drop in revenue among the big carriers, Hendrickson said.
The majority of the shortfall has been caused by low airfares, which have fallen to the cheapest levels in decades.
The biggest shift has been in walk-up airline tickets bought soon before the flight, usually purchased by business travelers. Major airlines have traditionally gotten the bulk of their revenues from these passengers rather than leisure travelers who buy cheaper tickets in advance.
Average walk-up fares dropped about 11 percent from 2001 to 2003, Hendrickson said, dropping from $778 for a one-way ticket to $695.
The drop was even greater in certain markets with heavy business traffic.
Sabre analyzed fare data for transcontinental flights and concluded that revenue from business travelers dropped nearly 50 percent from 2000 to 2002.
"We see signs that it is still trending this way during 2003," he said.
The major carriers have launched special deals in recent weeks to try to lure travelers to buy more expensive business fares. American, Delta and other large airlines are offering a free flight for every three business fares purchased. United Airlines on Wednesday unveiled a promotion that would give a free international ticket to anyone who bought a first-class or business-class international ticket between now and Sept. 14.
In the past, airlines have been able to push fares up by reducing the number of flights available, thus putting supply and demand into balance.
But today, discount airlines are expanding quickly as the major carriers cut back, which increases the pressure to keep fares low. Other analysts agree with Sabre's conclusion and its ominous implications for the industry's short-term future.
"There is no sign yet of the return of higher-yielding corporate travelers," said Ray Neidl, an airline analyst for Blaylock & amp; Partners, in a recent report to investors.
He added, "Pricing remains extremely weak, which in our opinion, will result in weak [revenues] and continued losses."
Neidl predicts that the major carriers will continue to lose money until mid-2004 at the earliest.