Virgin fuels fare war between U.S. airlines

By Kyle Peterson - Analysis

CHICAGO (Reuters) - The launch of low-cost airline Virgin America Inc this year has triggered a fare war that has nearly halved ticket prices on some routes and could erode earnings at rival airlines.

The competition has been especially fierce between Virgin, which is partly backed and fully branded by British entrepreneur Richard Branson, and UAL Corp's (UAUA.O: Quote, Profile, Research, Stock Buzz) United Airlines on the transcontinental route between San Francisco and Washington, D.C.

Low-cost carriers JetBlue Airways (JBLU.O: Quote, Profile, Research, Stock Buzz) and Southwest Airlines (LUV.N: Quote, Profile, Research, Stock Buzz) also have been drawn into a turf war with Virgin and responded with capacity additions and fare cuts.

"It's pretty apparent that the airlines are worried," said Rick Seaney, chief executive of fare tracker FareCompare.com.

Virgin launched service in the United States on August 8, diving into a U.S. airline industry that is recovering from a years-long downturn.

Through deep cost cuts and fare hikes, U.S. airlines have managed a recovery in the last two years after grappling with low-cost competition and excess capacity. But the Virgin invasion adds fresh fuel to those troubles for some competitors.

FARE PRESSURE

According to FareCompare data, United has cut its lowest advance purchase fares on round-trip flights between San Francisco and Washington by 20 percent since mid-July, when Virgin started selling tickets.