Higher airline fares push up vacation costs

Airline fares are going up - again. Ticket prices have been climbing since summer 1987. But there's been a recent change. While business travelers have borne the brunt of air fare increases, moves this week would boost prices and tighten restrictions further for the vacation-loving crowd. The increases, aimed at the peak holiday travel season, take effect this week.

Coast-to-coast travel from Washington to Los Angeles has ranged from $238 to $278, according to travel agents. Such fares are expected to increase about 10 percent across the board, to around $318.

Equally important, a 14-day advance purchase is to be required on many such tickets - instead of 7 days. A year ago, only 2-day advance purchase was required for the deepest discounted tickets.

Continental Airlines has bolstered the most recent round of increases and plans to boost its MaxSaver round trip fare from Chicago to Los Angeles from the present $208 to $298. MaxSaver is a type of discount, also carried by other airlines and used mainly by vacation travelers.

While a number of vacationers will pay more, travel agents say many Christmas travelers will not be affected much, since most discount seats for the holidays were purchased long ago.

``We had people buying Christmas tickets in June and July, mainly because they were afraid of fare increases,'' says Philip Davidoff, president-elect of the American Society of Travel Agents, which represents 20,000 members. ``Low-cost space to nearly everywhere in the country is gone,'' he says, ``except for off-times and certain days.''

Mr. Davidoff says fares have been ``creeping up'' all year for an overall increase he estimates to be 15 to 20 percent. Undergirding the increases is the blunt fact that demand for airline seats remains strong.

So far, the increase in prices has not caused a drop-off in demand for tickets. The economy is steady, supporting travel budgets that shrink during recessions. Once-heated competition has also cooled.

``This rise in ticket prices began in the summer '87 with fuel-related fare increases,'' says Mark Daugherty, an airline analyst with Dean Witter Reynolds Inc., a New York brokerage. ``In the past 18 months, there has been a continued series of upward fare moves, partly due to less competition in the industry, and partly due to a good economy.''

Mr. Daugherty and Mr. Davidoff agree that air fares are potentially volatile and will remain steady or rising only as long as the outlook for the next few months appears strong. Any hint of a weaker economy, evidenced by lower numbers of advance reservations, could spark a downturn in prices.

``If the airlines see their advance bookings dropping a month from now for the January and March period - if they see it is weaker than a year ago - they'll probably drop right back,'' Davidoff predicts.

On the whole, both 1987 and this year are turning out to be banner years for the United States airline industry, as companies like American Airlines, Northwest, and United have hardened their lock on air travel in various regions. The result, Daugherty says, is that with few exceptions (Texas Air's Continental and Eastern, as well as Pan Am) the industry has been, and expects to be, highly profitable.

In 1987, the industry had record profits, with gross operating profits of 2.2 billion, Daugherty says. This year many analysts expect operating profits to rise as high as $2.8 billion or even $3 billion.

While fare increases are expected to ``level out,'' Daugherty says, the industry's performance is strong, not only relative to its own weak past performance during the early days of deregulation; it is respectable compared with other industries.

If industry earnings of $3 billion are divided by its roughly $56 billion in total revenues this year, the result is an operating profit margin of about 5 percent. That, Daugherty says, is a respectable level for any industry.