Air-Sector Stocks Fare Poorly After New Northwest Airlines Offer

Northwest Airlines (NWAC) sent shivers through the already beaten-up airline sector as it announced a strategy to attract more business travelers with reduced fares.

The American Stock Exchange Airline Index ended the trading session down 3 59/64, or 3.2%, at 119 29/32, dragged lower by Northwest, which shed 1 1/16, or 5.7%, at 17 7/16.

The airline introduced its new BizFlex fare category, which will offer a 40% discount off regular full coach fares on 10-day advanced purchase without requiring a Saturday night stayover.

The new structure is aimed at luring business travelers, who in many cases spend weekends away in order to take advantage of cheaper flights. The new fare will be about 10% to 20% more than the excursion fares that include the Saturday night stayover, but Northwest is betting that the savings from not having to foot the bills for weekend stays will make the new option attractive.

"Survey results documented that substantial numbers of business travelers were staying over a Saturday night to take advantage of lower fares, but were incurring additional costs for lodging, meals and rental cars as well as spending personal time away from their home," Northwest said in a statement.

Northwest, the fourth-largest U.S. airline, expects to net an additional $50 million in revenue annually as a result of the new BizFlex fare.

Analysts said other airlines would most likely begin offering a similar fare since airlines generally copy one another's fare structures in order to remain competitive.

None of the other airlines have so far matched Northwest's business fare, but United Airlines(UAL) cut prices by up to 40% on some advance-purchase, leisure-fare tickets for selected U.S. and international flights.

United's offer matches a similar one by Delta Air Lines (DAL), which was announced on Tuesday.

Despite Northwest's positive revenue forecast, the stock market did not look favorably on the possibility of a new sectorwide business fare.

Shares of the nation's three largest carriers all came under pressure Thursday. Shares of AMR, the parent company of American Airlines, (AMR) fell 2 1/8, or 3.8%, to close at 54 1/4; UAL, the parent of United Airlines, shed 1 3/16, or 2.3%, to 51 5/16, and Delta Air Lines dropped 1 13/16, or 3.8%, to 45 13/16.

The airline sector has languished since January, when several airlines cautioned that they expected earnings to come under pressure following a steep run-up in the price of fuel.

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