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American to launch bare-bones airfare in 2016

NEW YORK, October 24, 2015

American Airlines Group, the world's largest airline, on Friday said it will roll out bare-bones fares in 2016 to battle US budget carriers, overshadowing a surge in its third-quarter profit.

American's stock fell nearly one per cent.

American will match competitors' prices on any nonstop route, its president, Scott Kirby, said on an investor call.

The airline's move to sell cheap fares with more restrictions highlights how competition is intensifying between the largest US airlines and low-cost rivals, such as Spirit Airlines and Southwest Airlines Company.

Shares of Spirit, which has made its mark with ultra-low fares with heavy restrictions, fell more than eight per cent.

Some 87 per cent of American's customers flew the airline just once last year, comprising more than 50 per cent of revenue, according to Kirby.

He said these are customers "for whom air travel is largely a commodity," meaning they will switch to a competitor if American charges more per ticket.

Sterne Agee CRT analyst Adam Hackel said American's vow to compete may have made investors jittery. He added that American may restrict the number of the cheapest fares it will roll out in 2016 so that some customers will buy higher-priced tickets.

Starting in 2014, Southwest and Spirit have ramped up service from two of American's hubs, Dallas and Chicago, at times exceeding demand and pushing down fares.

The budget phenomenon has mimicked competition in Europe, where low-cost airlines such as Ryanair Holdings now carry the most passengers.

Next year American will sell a larger array of tickets that are priced according to certain restrictions, Kirby said.

The company waited to make the change until retiring the brand and bookings site of subsidiary US Airways, which it did on October 17.

For the third quarter, American reported earnings jumped 80 per cent to $1.7 billion, on lower fuel prices. The results topped analyst estimates.

American said passenger revenue, as a percentage of capacity, will fall between five and seven per cent in the current quarter from a year ago. The measure fell 6.8 per cent third quarter.

The company said it expects pre-tax profit margin between 12 and 14 percent in the fourth quarter, up from 10.6 per cent a year earlier.

For 2016, American plans to grow service 2 to 3 per cent.-Reuters




Tags: American | Airfare |

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