19 October 1998

Return air fares to US may fall to 120

By Philip Thornton Transport Correspondent

The cost of return flights to America could drop to 120 as the severe economic crisis on both sides of the Atlantic forces airlines into an increasingly bitter price war.

The financial turmoil in the New York financial markets, the downturn in the fortunes of British industry and the strength of the pound have combined to cut demand.

Analysts said airlines would be forced to cut prices in an attempt to fill empty seats. The problem has been compounded by a huge increase in capacity on transatlantic routes.

British Airways fired the first shot on this side of the Atlantic earlier this month, offering cuts of up to 50 per cent on international flights as part of a national newspaper offer.

Richard Branson's Virgin Atlantic responded last weekend, cutting fares in half with prices deliberately set to undercut BA's discount offer. Virgin cuts its fare - for flights on specific dates - to New York from 310 to 139, undercutting BA's 143. These figures do not include airport tax, which adds 44 for a trip to the US and between 10 and 20 for Europe.

Philip Genochio, transatlantic manager of Quest Worldwide Travel, said: "We are looking for a figure of around 160 or 170 including tax, or about 120 without tax."

He said he would be surprised to see the pre-tax price fall as low as 100 for a New York trip, but added: "If it does go that low then there are some serious problems going on. Frankly the prospect scares me."

Ian Swain, commercial manager at Thomas Cook, the travel agent, said he believed fares to New York could fall to 120 before tax as airlines competed for business in the quiet season before and after the Christmas rush.

Asked about a 100 ticket, he said: "I wouldn't like to say it would never happen but I can't imagine it falling so low."

Chris Avery, London-based aviation analyst at Banque Paribas, the French bank, said the offers were the latest sign of an impending price war. "There have been better deals in the past but the fact is that the intensity is getting stronger.Capacity has been rising and demand has been slipping and the inevitable consequence is an increase in activity on prices."

BA said price cuts were part of a competitive market and insisted the transatlantic route had held up well. "There is extra capacity in the market caused by the economic conditions in Asia which has seen aircraft deployed elsewhere," a spokesman said.

The picture is supported by forecasts from the International Air Transport Association, which predicts a slowing in growth rates from 7 per cent this year to 5 per cent in 2002, against a historic background of annual growth of 8 per cent. Airlines have always discounted fares for short periods to fill unsold seats but never for long stretches or over busy periods when flights would almost fill themselves.

Mr Genochio said: "One break with tradition, if discounted air fares have a tradition, is that these fares are for travel up to five months in advance. With the possible or probable down-turn in the economy it looks like the airlines are not too optimistic for the early part of 1999," he said.

This could see rival operators such as United Airlines, American Airlines and Continental following suite. In the case of major US cities, travellers can pick and choose between 10 different daily flights.

Another travel agent said: "If someone was on the phone about flights to the States next February or March and asking whether he should buy now, I would have to say it might be worth waiting for lower fares."

Mr Genochio said the transatlantic market could follow Europe's price-war pattern. "These companies [in Europe] are cutting each other's throats and offering cheaper and cheaper fares and there's a potential for that to exist among airlines flying to the States."