Why airlines are offering cheap last-minute fares

Earlier this week, I was in Chicago, and I saw something amazing. If I wanted to fly home to Los Angeles that same day, I could buy a ticket on United Airlines for $69 one-way. 

What's going on here?

I can't say for sure, but Spirit Airlines and Frontier Airlines also fly this route, and they're known for heavily discounting their tickets, both in advance and in the last minute. It is possible United was selling these fares as an attempt to undercut Frontier and Spirit. 

Maury Gallagher is CEO of discount carrier Allegiant Air, and he is known for being blunt. His airline is insulated from most competitive pressures because it doesn't compete directly with United, American and Delta. But on Allegiant's second quarter earnings call this week, Gallagher described how major airlines have changed pricing strategies in some markets. It's all about competition. 

"If you go back 10 years, 20 years ago, you didn't go into a guy's marketplace and not face kind of a 2-by-4 across your forehead," Gallagher said. "I remember [what] Northwest [did.]  I think Reno Air went from Reno to Minneapolis, [a Northwest hub.] Not only did Northwest respond to that, they took some old 727s and put them in Reno and started running a hub out of Reno.

Fuel is relatively cheap, and the big airlines can afford to be aggressive, because it costs a lot less to fly the planes than two years ago. "It comes down to when the good times are rolling, you can afford to do some of this more so than you might do when things are tighter," Gallagher said. 

He seems amused by the phenomenon. If powerful airlines want to sell super discounted fares at the last minute, Gallagher said that is their prerogative.  All airlines are making money now, so this big ones can go after Frontier and Spirit. 

"When you've got this much cash running around, everybody's chest falls out a little bit and we [in the industry] all feel real good, real smart and real tough in many cases," Gallagher said. 

What happens next? If fuel stays cheap, I think we can expect more cheap fares from United, Delta and American - but only on routes on which they compete with Frontier and Spirit. If you live in Grand Rapids, Michigan or Topeka, Kansas, you're probably out of luck. 

Are you pleased with this development? Have you seen any deeply discounted fares on routes you fly regularly?