- Pricing battle creates `toxic fare environment,' CEO says
- Airlines fight to maintain market share amid discounting
Virgin America Inc., caught up in a Dallas fare war, said it will fly out of the city with empty seats rather than sell tickets at rates so deeply discounted it can’t make money.
The pricing battle began in 2014 when Southwest Airlines Co. and Virgin added flights after restrictions at Dallas Love Field were lifted and ultra-discounter Spirit Airlines Inc. increased service from nearby Dallas-Fort Worth International Airport, American Airlines’ biggest hub. Carriers trimmed fares to fill seats that flooded the market.
While that’s no longer the case, the “very toxic fare environment” has continued, said Virgin America Chief Executive Officer David Cush.
“We are not going to fly passengers at rates that will not make money,” he said on a Thursday conference call with analysts. “We are going to make sure we get an average ticket value up to where its sustainable and we can earn a return, and we’ll take the hit on load factor.”
One-way fares of $30 from Dallas to destinations along the U.S. West Coast and $41 walk-up fares from Dallas to New York’s LaGuardia Airport were among those Virgin America cited from a recent review of airline data filed with the U.S. Transportation Department. There’s no indication when the battle might end, and “everyone is feeling the pain,” he said.
Southwest and American are reporting load factors, or the amount of seats sold, above 90 percent on some flights to Los Angeles and New York, with about half the tickets priced below $100, he said.
Fare wars are occurring in other markets, like Atlanta and Chicago. In Dallas, however, “I’ve never seen anything like it in my life,” Cush said. “Clearly, what we have is a market-share war going on in Dallas.”
American Airlines Group Inc., the world’s biggest airline, has said it won’t lose passengers to discounters and is creating a Basic Economy fare class that would offer a seat at a low base price, with no extras. The carrier declined to comment Thursday. Southwest is “very pleased” with its Dallas results, the airline said in a statement, declining to comment on fares.
Southwest controls all but two of the 20 gates at Love Field near downtown Dallas, and American dominates Dallas-Fort Worth International. Virgin America flies from Love Field.
Virgin America, which has served Dallas since 2009, doesn’t have any plans to leave, Cush said. The market has been profitable and the longer-term outlook “is very good,” he said.