Big Airlines Plan to Change Fare Structures : Ticket Costs Expected to Increase by 3% to 5%

Several of the nation’s big airlines plan to change their fare structures later this month in a move expected to raise ticket prices for many passengers.

But some observers said Wednesday that the strong presence of discount carriers like People Express and Continental Airlines leaves doubt about whether the increases will stick.

The move was started last week by the nation’s largest carrier, United Airlines, which announced plans to use a fare system that ties the cost of a ticket to the mileage of the flight.

United’s chief rival, American Airlines, said it would adopt most of the changes planned by United beginning Aug. 17. Trans World Airlines and Pan American World Airways said they also planned to adopt the new system on many routes where they compete with United and American.

3% to 5% Increase

While the new system will result in some lower fares, airline officials estimate that fares on average will climb between 3% and 5%.

For example, United said the regular coach fare for a one-way trip between New York and Chicago will drop to $250 from $265. But the coach fare between Dallas and New York will climb to $370 from $344, and between San Francisco and New York the fare will rise to $520 from $479.

At the same time, United and American plan to add $10 each way to the price of their deepest discount fares, which will lift those prices by between 7% and 26%. Those fares require tickets to be purchased 30 days in advance, among other requirements.

The change represents another attempt by the airlines to curb price wars that frequently have erupted since the industry was deregulated in 1978.

While many airlines want higher prices to help bolster their profits, they have been forced in the past to match price cuts initiated by one or more rivals in order to remain competitive, particularly on heavily traveled routes.

The system of basing prices on the distance of flights--matching prices more closely to costs, in the airlines’ view--is similar to one that American introduced two years ago but that soon evaporated as price wars again flared.

This time, some analysts think that the increases stand a better chance of sticking, mainly because they are moderate, the two largest airlines both adopted the plan and the industry overall is enjoying strong traffic growth.

Mark E. Daugherty of the investment firm Dean Witter Reynolds estimates that traffic for the 20 biggest airlines rose 14% in the first half of 1985, compared to a year earlier.

The load factor--the percentage of available seats actually filled--climbed to 63.2% from 58.8%, he said.

“Fare increases that may result as these new programs catch on will not drive away a significant portion of that traffic,” said Timothy P. Pettee of the brokerage firm L. F. Rothschild, Unterberg, Towbin.

Significantly, several major airlines--including Delta, Eastern and Republic--have not yet matched United’s proposal, posing the possibility that they might undercut the higher fares and trigger a new price war.

The presence in the market of discount carriers People Express and Continental also “makes it very difficult to predict” whether the new fare programs at United and American can be sustained, said Lee Howard, executive vice president of Airline Economics Inc., a market research firm in Washington.

Pettee said he expects most of the new higher fares to stay intact even though “there will be some chipping away (of prices) in some markets.”

But he acknowledged that the ability of United, American and the others to keep their higher prices “will be determined by the consumer, not the airlines.”