United Raises Fares; Other Airlines Follow
In a move likely to end bargain-basement prices for many air travelers, United Airlines on Tuesday announced higher fares effective Oct. 26. United’s major competitors quickly followed suit.
The airlines hope that the wide-ranging price hike will enable them to take advantage of a recent surge in passenger volume and improve sagging profits.
United, the nation’s largest carrier, frequently sets the trend for the industry. The higher fares will apply to all routes except the relative handful on which it already raised fares, effective Oct. 1. United and the other carriers also increased all “deep discount” fares--those requiring advance bookings of up to 30 days.
Joining United in the fare increases were American Airlines, Eastern, Piedmont, USAir, Pan American, TWA and Delta.
A notable exception was Continental. “We are not raising fares,” said Bruce Hicks, a Continental spokesman. “We think our fares are where they should be.”
Western Airlines, which competes at its Salt Lake City hub with Continental, which has a major hub at Denver, said it will not increase fares on most routes emanating from those airports, but will raise them along Pacific Coast routes.
Airline spokesmen conceded that they were able to take the step not only because of improved business but also because of the recent spate of airline mergers, the bankruptcy last August of Frontier Airlines and the current financial woe of People Express.
Business Improving
“Traffic has been increasing in the last two months,” said James Carey, vice president of research for Airline Economics, a consulting firm in Washington. “With that kind of a strong improvement in business, the carriers felt it was now time to raise fares to levels that would give them profitability.”
Carey said he expects continued competition, but an end to “cut-throat fare levels.”
Largely as a result of fare cutting, the industry suffered a $669-million loss in the first quarter of this year, compared to a profit of $86 million a year earlier. The industry recorded a $209-million profit in the second quarter, less than a third of the $772.2 million earned in the same period last year.
The airlines will increase regular coach fares and discounted fares by $10 one way for distances under 1,000 miles and $20 each way on longer routes. The deeply discounted fares requiring advance purchase will be increased by $20 round trip, which will keep them 70% lower than regular coach fares.
“These $10 and $20 increases will keep regular and discounted coach and excursion fares in their current relationship to each other and will spread the increase equally over all traffic,” said Charles Novak, a United spokesman. The cheapest fare, requiring purchase 30 days in advance, will still be below the level of May, 1985, he added.
Cross-Country Fares
For example, the lowest fare for a round-trip flight between New York and Los Angeles will rise $20 to $218. Regular one-way coach fare between the two cities will increase $20 to $510.
Last summer’s fare wars resulted in dismal business for the airlines. During July, the industry’s yield, or average fare, dropped to 10.74 cents a mile from 12.48 cents during all of last year.
Nine of the 12 major airlines--those having revenues of $1 billion or more annually--increased traffic volume by an average of 13% in August, the best monthly growth rate in more than a year. New single month traffic records were set by five of the majors--American Airlines, Continental Airlines, Eastern Airlines, Piedmont Airlines and USAir. But 90% of all air travelers this summer flew on some kind of discounted fare.
Such bargain-basement discounting was conducted by airlines desperate to stay out of bankruptcy by increasing passenger volume, he said, citing among others Frontier Airlines, which was taken into bankruptcy recently by its owner, People Express. (People Express itself is in the process of being acquired by Texas Air Corp., owner of Continental and New York Air, and prospective owner of Eastern.)
People Express Bookings
Largely because travelers have become wary of flying financially troubled People Express, other airlines have been able to boost fares. Newark-based People Express, which flew with 67% of its seats occupied in August, flew with its planes only 44.9% full last month.
(People Express was helped somewhat by two recent three-day half-price sales, the first resulting in 800,000 bookings and the second in 600,000. A normal month currently draws about 300,000 passengers to People Express.)
Robert B. Cozzi, Trans World Airlines’ vice president for revenue management, said the fare increase “is a recognition of the fact that in the first eight or nine months of this year the industry hasn’t had any revenue growth even though it has passenger growth. We ended up with essentially non-compensatory fares.”
On Oct. 1, United, American, Delta and TWA raised fares about 5% for certain non-stop routes in a move aimed largely at business travelers. Discount fares were not affected.
