American to launch bare-bones airfare in 2016 to rival Spirit

Fri Oct 23, 2015 3:37pm EDT
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By Jeffrey Dastin

(Reuters) - American Airlines Group Inc (AAL.O: Quote), the world's largest airline, on Friday said it will roll out bare-bones fares in 2016 to battle U.S. budget carriers, overshadowing a surge in its third-quarter profit.

American's stock fell nearly 1 percent.

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 U.S. airlines and low-cost rivals, such as Spirit Airlines Inc (SAVE.O: Quote) and Southwest Airlines Co (LUV.N: Quote).

Shares of Spirit, which has made its mark with ultra-low fares with heavy restrictions, fell more than 8 percent.

Some 87 percent of American's customers flew the airline just once last year, comprising more than 50 percent 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.   Continued...

An American Airlines airplane prepares to land at the Jose Marti International Airport in Havana September 19, 2015. REUTERS/Carlos Garcia Rawlins