Air fares rising, and not just over fuel
Airline fares are soaring closer to the clouds as recent increases of up to 20 percent take effect this month. On Sept. 1, Eastern increased its prices by 6 to 10 percent.
On Sept. 3, Transworld, Braniff, and American fares went up 10 percent.
On Sept. 16, United's and Western's will rise 10 percent. PSA (Pacific Southwest Airlines) will establish a 20 percent hike on its commuter services.
The increases, according to William Jackman, vice-president of the Air Transport Association, are not solely attributable to fuel costs. "There has been a distinct falloff in air travel," he says. "From Jan. 1 through Aug. 1, volume dropped 3 percent from last year. This may not sound too major, but prior to this year, passenger volume had always grown substantially."
Ed Hamilton, a spokesman for the Civil Aeronautics Board (CAB), agrees with Mr. Jackman, saying, "The economy has been the most severe factor, limiting business and pleasure travel."
However, Charles Novak, director of corporate communications for United Airlines, says the rise in jet fuel costs is responsible for United's fare increases: "Every penny rise means $20 million annually."
Fuel prices have risen rapidly, of course. Plane fuel in 1974 accounted for 10 percent of operating costs. It is now apportioned at 30 percent.
Fuel prices have recently leveled off. But the airlines are trying to recoup from losses in the first half of this year. "Low profits equal higher prices," Mr. Hamilton says.
General costs have continued to rise, with employee wages going up regularly. Moreover, travel agent commissions have been deregulated. They now average 9.4 percent rather than the 8 percent one year ago. That change is important, because agents handle over more of all air travel arrangements.
The airlines are trying to make up for the added expenses by boosting traffic with a new maze of gimmicks that can save the passenger money -- if he can figure out when to go where.
The Air Transport Association's Mr. Jackman refers to the gimmicks as "cereal-type promotions." Airlines, to advertise new carriers or new routes, have developed short- term hoopla. One line offered a kiss-and-tell flight -- where customers are expected to "come up and kiss the attendant" for a fare reduction. Also, there have been one-cent flights (buy one, get another for a penny) and free passes. In one case, the usual commission basis for travel agents was reversed to encourage sales -- 91 percent of the fare went to the travel agent, 9 percent to the airline.
For the month of September, Pan American World Airways is giving anyone flying its domestic routes a pass that entitles him to a two-for-one ticket valid from late October through February to any one of 12 destinations -- including Guam, Costa Rica, Guatemala, and Kenya.
The airlines may be losing money on cheap fares, such as the transcontinental flight (New York to Los Angeles for $129). But they deny they are making up for it by raising prices on standard fares. Says Mr. Jackman, "This sort of 'cross-fertilization,' or subsidizing low fares through higher ones, is not an acceptable practice."
The goal of discount fares is to attract new traffic and make better use of existing equipment by operating it for more hours per day (reduced-fare night flights, for example) or at fuller capacity.
But Mr. Jackman figures it's practically impossible to see how airlines are making money on some of these low fares.
United's Mr. Novak refused to comment on individual routes, but did say, "The transcontinental flight is low yield, although it has generated traffic. There are far too many seats available in the New York-to-Los Angeles market."
Eastern says the flights are making money because planes are loaded.
The Civil Aeronautics Board will cease to exist in 1985. In the meantime, it is trying to ease the airways into total deregulation -- an objective for 1983. The theory is that competition will keep prices reasonable.
All airlines operating within the United States are granted small percentage fare hikes, good for either two or four months, by the board. These are an effort to offset rising expenses.
The airlines are not stuck under these ceilings. "The idea is to have them apply for further rate increases," explains the CAB's Mr. Hamilton. These are usually granted almost automatically.
Mr. Jackman is enthusiastic about deregulation, saying, "The carriers would be worse off without it.The ability to up fares quickly has helped them through rough times."
Last May the CAB passed rules that allowed for different rate increases dependent upon mileage. For instance, in the 200-to-400-mile range, the airlines could apply for a 50 percent rise. For flights under 200 miles the lines may charge anything they wish.
But not to worry, says Mr. Hamilton. "Just because we give them that high limit doesn't mean they take it. In July, Braniff filed for the 50 percent limit on its Washington-to- New York flight. But the next day they changed their minds and withdrew; Eastern and American took a 6 percent increase on the same route. Who would fly Braniff?"
The way the CAB sees it, the airlines will increase their prices enough to keep ahead of inflation, but stay competitive with one another. And the consensus among industry representatives is that "competition will keep things down."