ABSTRACT
On August 27, 2001, Northwest Airlines, the fourth largest US carrier, announced it was reducing fares on domestic and international flights by as much as 25 percent. For example, the price of a round-trip ticket from Detroit to Paris fell from $679 to $512. Not only were fares reduced, but the normal 21-day advance purchase requirement for the cheap fares was cut to 14 days and tickets purchased over the web were eligible for an additional 5 percent discount. This was obviously a boon to travelers. But imagine what the situation was like at Northwest’s main rivals: American Airlines, United Airlines, and Delta Air Lines. The cut in fares was significant and Northwest had advertised that it was going to last for at least four months. The other airlines had to react quickly or risk losing business to Northwest. 1 Given the slim profit margins enjoyed by airlines in 2001, it’s probably not overstating the case too much to say that a quick and sensible reaction to Northwest’s fare-cutting was vital to the profitability of the other airlines.
