Air Fare Price War Seen as American Sets Cuts : Competitors Match Reductions of Up to 74%; Shares of Companies Plunge in Heavy Trading
In a surprise move that may ignite a nationwide airline fare war, American Airlines said Thursday that it would cut its coach fares by up to 74% CQamong all of the 92 cities that it serves within the continental United States.
The move by American was quickly matched by all of its competitors. Prospects of a fare war caused airline stocks to be traded heavily, and the shares of most airline companies declined dramatically.
“Sure, it’s a fare war,” said John Hopkins, a spokesman for United Airlines, the nation’s biggest carrier. “They are lowering their fares and they are challenging the rest of the industry to respond to them.”
United Matches Plan
United said it would match the American plan on all its routes in 48 states. Eastern, Delta, Pan Am, Continental and Trans World Airlines all said they would meet the competition.
However, some airline officials and travel agents said there were so many conditions placed on the fares in American’s new program that they doubted whether it would draw many new passengers to the airline.
The new discount program, dubbed “Ultimate Super Saver,” is designed to compete with such low-cost, post-deregulation carriers as People Express, to lure new travelers to American to help fill its empty seats--currently between 35% and 40% of capacity--and to help boost its sagging earnings.
The size of the reductions is based on the distance traveled. For example, the fare between Washington, D.C., and Los Angeles, a distance of 2,305 miles, will be $129 one way, a 72% discount for a saving of $328 from the $457 full coach fare. The discount between Atlanta and Dallas/Fort Worth, American’s home base, will be $74 from the full coach fare.
The new rates, however, contain some tight restrictions, including a requirement that the tickets be bought at least 30 days in advance of travel. Once the tickets are paid for, 25% of the ticket price will be nonrefundable in the event of cancellation. Travelers must also stay at their destination through the Saturday night after their departure and no longer than 21 days.
The new program takes effect Feb. 18.
Mike Gunn, American’s vice president-passengers sales and advertising, who announced the plan here, said 17% of American’s passengers already make their reservations more than 30 days before they leave. “That percentage can be even higher if there is significant monetary inducement,” he said.
The new fares are also part of American’s efforts to simplify its fare structure. In the future, there will be only three classes of coach fares: the full fare, which has no restrictions; the “Easy Saver,” which requires seven days advance purchase, and the new Ultimate Super Saver.
As with all such discount offers, only a certain number of discount seats are available on each flight. Airlines traditionally do not reveal how many such seats are available per flight. Gunn said an average of 30% of American’s seats will be sold at the new rates.
“The number will vary from day to day, by time of day and by flight segment,” he said. “Quite honestly, on a Friday afternoon between 5 and 6 and between La Guardia in New York and Chicago, you won’t find any such seats,” he said. “But there will be some at 2 p.m.”
No reduced seats will be sold in certain heavily traveled holiday periods, and fares will be raised between $10 and $20 for the summer period beginning May 24.
One travel agent, Carol Corwin of Quartet Travel in Larchmont, N.Y., indicated that the program may mean little to the average traveler. “They have these great fares in their advertisements. Then when you try to get a seat for your clients, they have no more left at those low prices.”
Martin R. Shugrue, vice chairman of Pan American World Airways, said American’s plan had “unrealistic” and “onerous” restrictions and cancellation penalties. He accused American of reverting to “bait-and-switch” tactics. “Scratch below the surface and these fares will appeal only to a narrow segment of the marketplace,” he said.
Gunn, however, vowed that 5 million seats would be devoted to the new fares in the first three months of the program.
He said he did not foresee a fare war that would be destructive to the airline industry as long as carriers following American’s lead maintained similar restrictions. “The critical element is if others leave the fences around the fares,” he said.
Certainly, the news proved unhealthy for airline stocks Thursday. Shares of American’s parent company, AMR Corp., tumbled $1.875 to $35.25 and led the New York Stock Exchange’s active list on turnover of nearly 4 million shares. UAL, United’s parent, fell $2.375 to $45.25. Delta Air Lines fell $2.25 to $43, USAir Group fell $1.25 to $35, Northwest Airlines Inc. fell $1.50 to $43 and Trans World Airlines fell 62.5 cents to $11.50.
The airline industry last engaged in a nationwide fare war in the winter of 1982-1983, when transcontinental fares fell as low as $99. The result was disastrous for the industry, with most companies suffering losses or serious erosion of their profits.
Times staff writer Tony Robinson contributed to this story.
