Air Fares Climb as Delta Blinks

Delta's fare simplification program and price cap are part of an ambitious restructuring plan aimed at averting bankruptcy. The nation's No. 3 carrier said lower maximum fares, along with fewer restrictions on purchases, would help it win back business lost to aggressive discounters such as JetBlue Airways (JBLU Quote).

But oil's price surge has swamped Delta's turnaround efforts. The airline has warned it could face a cash crunch later this year and said bankruptcy could be on the horizon if lawmakers don't give it and other carriers more time to fund traditional pension plans.

Delta's revenue will probably gain $80 million a year from the increase in its highest fares, an amount "insufficient to materially affect its Chapter 11 probability," J.P. Morgan analyst Jamie Baker wrote in a research note.

The roughly $300 million-a-year industry benefit from Delta's raising of its fare cap fails to offset the $1 billion in lost annual industry revenue resulting from the overall Simplifares program, estimates Benchmark's Becker.

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The analyst contends Delta could help the industry regain about $500 million of revenue if it were to undo Simplifares' cancellation of the two-night minimum stay requirement.

At least one other carrier, Northwest, recently tried in vain to reinstate that requirement on some fares, but Delta resisted.

In the past, airlines used the two-night minimum to charge business travelers more. That's because many business travelers only needed a day or two for their meetings. By requiring at least a two-night stay on cheaper tickets, airlines were able to nudge business travelers to purchase more expensive tickets that don't carry the two-night restriction. Delta's scrapping of the requirement allowed business travelers to enjoy cheaper fares typically bought by leisure travelers, who tend to stay more than two nights at destinations.