Boost for Carriers : Higher Air Fares Seem Certain as Rivalry Lessens
The recent demise of Frontier Airlines and the end of scheduled passenger service by World Airways are likely to result in higher fares for travelers, industry observers predicted Thursday.
They said the competitive price pressure that both carriers helped to exert on the airline industry will decline or disappear. But while passengers will have to dig deeper into their pocketbooks to pay for their tickets, the airlines will get a badly needed increase in revenue and may record increased profits.
The impact of the Frontier Chapter 11 bankruptcy filing last week will be felt mostly on flights into and out of Denver. It is there that Frontier competed with United Airlines and Continental Airlines in the only city in the nation where three carriers operated major hubs.
“I don’t think there is any question that fares will rise,” said Lee Howard, vice president of Airline Economics Inc., a Washington consulting firm. “You had a fierce fare war in Denver. It depressed fares there more than elsewhere in the nation.”
But upward price pressure will not end in Denver, the analysts said.
“What you are going to see is a ripple effect throughout the industry,” said Louis Marckesano, airline analyst with Janney Montgomery Scott, a Philadelphia brokerage house. “Frontier’s death . . . should help everybody in the industry because it will stabilize fares.”
World, which undercut competitors both within the United States and on overseas flights, was a relatively small competitor. Nevertheless, by announcing Wednesday that it will shut down its scheduled passenger service on Sept. 15, it lessened competitive pressure from some of the bigger airlines such as Pan American World Airways and Trans World Airlines, Howard said.
Before long, other competitors are likely to disappear from the scene. Eastern and Texas Air are trying to merge; TWA and Ozark will do so soon.
But United and Continental will continue to compete heavily in the Denver market, holding fares down, some observers said. United now has about 60% of the Denver business, compared to Continental’s 40%.
Big Boost for Western
The biggest beneficiary of the death of Frontier, some observers said, will be Western Airlines, which operates a hub in Salt Lake City. Asked how much business Western has gained since Frontier ceased to operate Aug. 24, a spokesman said only that “we are carrying a good number of people who would have flown on Frontier.” The two carriers served 38 common cities.
One thing is certain: The airlines need any fare increase they can get. The industry lost about $500 million in the first quarter of the year and had a minimal profit in the second quarter despite a sharp drop in the price of fuel--to 45 cents a gallon from 78 cents.
Not all fare increases will appear as such to the consumer because some will come in the form of greater restrictions on ticket purchases. Thursday, for example, Continental announced that it was cutting fares by as much as 29% to $99 on transcontinental flights and on flights to Hawaii between Oct. 27 and Dec. 31. But heavy restrictions require that passengers fly in midweek, make their reservations 30 days in advance and stay over a Saturday night, which makes the plan impractical for most business executives.
The airline also offered newly lowered fares for senior citizens and a frequent flier program for college students. However, the overall result is expected to be increased revenue and higher profits, analysts said. American, United and Western all said they would match the new fares.