Competition from surprisingly low fares at its biggest hub in Atlanta caused Delta Air Lines to post a smaller-than-expected gain in May revenue, apparently after Southwest Airlines cut its last-minute fares.
Those last-minute fares are some of the most profitable tickets an airline sells, because they are usually more expensive.
Delta said on Monday that per-seat passenger revenue grew 6 percent in May. It had predicted growth of 7 percent as recently as May 17.
The next day, Southwest Airlines and its AirTran unit filed discounted fares on more than 200 routes, including 46 to Atlanta, according to JPMorgan analyst Jamie Baker. The lower prices were generally for so-called "walk-up" fares, meaning tickets bought just before travel, and included 46 in Atlanta. Baker found one-way examples that included Atlanta-Baltimore for $79 and Atlanta-Denver for $159, where a more typical fare would have been $304 on both routes.
Baker wrote that Southwest "regularly tinkers with promotional walk-up fares" and future pricing experiments would not be surprising.
Southwest didn't even fly to Atlanta until it bought AirTran a year ago. Delta has gotten a lot of questions about how its business would be affected by competition against Southwest at Delta's most important hub.
Delta didn't single out Southwest for the May revenue shortfall, instead blaming "the impact from competitor fare actions." It said its May performance was still strong considering its "exceptional" gains in May 2011. And the airline still expects strong revenue during peak summer flying months.
The disappointing May revenue gain pushed shares of Atlanta-based Delta Air Lines Inc. down $1.33, or 11.6 percent, to close at $10.18 on Monday. Other airline stocks fell, too, with United down $1.84, or 7.6 percent, to $22.52, and US Airways Group Inc. down $1.46, or 11.6 percent, to $11.18. Southwest Airlines Co. fell 34 cents, or 3.8 percent, to $8.60.
In addition to pressure on fares, Delta saw May traffic fall 0.6 percent. A 2 percent drop in domestic traffic was partially offset by a 1.5 percent gain in international flying as Pacific flying rebounded after the March 2011 earthquake in Japan.
Delta cut flying capacity 0.9 percent in May. Domestic flying dropped 2.4 percent, while international flying rose 1.3 percent. Flying across the Pacific jumped 15.7 percent.
Because the traffic drop-off was a little smaller than its capacity cuts, Delta's planes were slightly fuller. Occupancy rose two-tenths of a percentage point to 84.1 percent.
Through the first five months of the year, Delta traffic has risen 0.7 percent, even as it has cut capacity 2.3 percent. That has boosted occupancy by 2.4 percentage points to 81.2 percent.
- Delta Air Lines
- Southwest Airlines