New Air Fares Aimed at Cutting Confusion
FLYING will be cheaper for last-minute travelers this week. Discount fares for those who can book ahead will also be lower - though seats may be harder to find.
The reason is a major price restructuring detailed in a $20 million ad campaign by American Airlines, the nation's largest carrier. United and Delta, the industry's two other giants, moved quickly to match the price shifts.
The confusing maze of air fares has long been a source of passenger frustration. Regular coach fares have shot up at twice the rate of inflation over the last decade. A full 94 percent of all air travelers buy discount tickets with cumbersome rules requiring advance purchases and Saturday-night stopovers. Some ask about regular coach fares, such as the $854 round-trip ticket price between New York and Chicago, in effect until yesterday, but usually just for laughs.
The American-led price shift, announced just before the peak summer travel season, comes at a moment when economists are beginning to talk about the end of the recession, but at a particularly tough economic juncture for most airlines. Traffic is up slightly since the end of the Gulf war, but dollar losses continue.
American Airlines chairman Robert Crandall says the airline pricing system is "broke" and that he is trying to simplify it and make it fairer. Coach fares, for instance, go down this week by an average of 38 percent. Nonrefundable discount tickets, in a plan similar to one tried in recent months by USAir, could be rescheduled for a later trip for a $25 service fee. The charge would also apply to refunds sought on regular tickets. All special corporate and group discounts would be canceled. Only 21-day an d 7-day advance purchase discounts remain.
The aim is to get more people flying - at the highest fare they are willing to pay. American says it expects to lose $100 million in the current quarter but eventually to pick up as much as $350 million more a year.
"I think it's a very bold and risky move; it may be too much too fast," says Lee Howard, president of Airline Economics Inc., an organization that closely tracks economic trends within the industry. "But certainly the concept is a sound one. It's a move in the right direction."
"In the early stages it's going to be tough ... [but] if the economy kicks in, it will work very well," comments Edward Starkman, an airline analyst with Paine Webber Inc.
Not all airlines have moved to follow American's lead. TWA, one of three airlines now operating under Chapter 11 bankrupcy protection, announced its own set of deeper price cuts on April 12.
Several previous attempts by American to revamp the pricing system failed as carriers on the financial edge opted for price wars to raise needed cash. Most analysts say the industry is now so consolidated that most airlines will have little choice but to go along. "It's kind of a fait accompli," says Mr. Starkman.
American may readjust prices to remain competitive, says Mr. Crandall, but the restructuring is "permanent."
The working theory behind the plan is that a growing number of business travelers will choose the freedom of the more reasonable coach fares over the many restrictions of lower discount fares. With that increase in demand, fewer deep discount seats would be available.
"I think this is probably going to be better for business travelers and worse for some vacation travelers," notes Paul Dempsey, director of the transportation law program at the University of Denver. "But it will be better for the American public overall. It's going to be easier to comparison shop."
Some veteran airline watchers, however, are skeptical that such a deep slice will hold. "How many fares will there be in the system a month from now?" asks Con Hitchcock, a lawyer who watches transportation issues for Ralph Nader's group, Public Citizen.
One strong industry trend that American's new pricing move could indirectly accelerate is toward fewer and fewer carriers. In 1978, before deregulation, there were 36 US airlines. Today there are closer to a half dozen, and the top three carriers have 55 percent of the market.
"The tragedy is that the industry is already much more concentrated than it ever has been," says Denver's Paul Dempsey. "This is the exact opposite of what Congress was promised under deregulation. I think we need a major correction."