Continental, Eastern Plan Big Fare Cuts With No Refunds for No-Shows

Jointly owned Continental Airlines and Eastern Airlines announced major cuts in air fares Thursday, but, in an effort to reduce the number of passengers who do not show up for flights, said the tickets must be paid for when reservations are made and that the money will not be refundable.

The action, which would reduce the fare between New York and Los Angeles to $89 each way on a round-trip ticket, caused concern on Wall Street that it would set off a new round of fare wars. Airline stocks fell sharply.

“There has been a good deal of speculation by some financial analysts and in the media that low fares are going away,” Thomas G. Plaskett, Continental’s president and chief financial officer, said at a news conference called to announce the across-the-board fare reductions. “Well, we intend to put that to rest once and for all today.” He added that tickets at the new fares may be purchased as little as two days before the flight.

The airlines have long complained that many people make reservations on several flights so they can decide on the day of the flights which one best fits their personal schedule. Then they simply do not show up for the other flights. Airline officials have said such “no shows” should have to pay, just like people who buy tickets for theatrical and sporting events but do not attend.

“This is a theater ticket in the sky,” Plaskett said in an interview following the news conference.

Analysts said they fear that the new fares could hurt the industry, especially if they are extended into the busy summer travel season. “In the summer, people take trips without having to be stimulated by low fares,” said Anthony Hatch, airline analyst with Argus Research of New York. The new fares, he added, “could result in fare wars and potential losses.”

Paul Karos, airline analyst with the New York brokerage house of L. F. Rothschild, Unterberg, Towbin, said: “It does put us in a situation where we might go from a period of yield stability (in the airline industry) to one of yield uncertainty.”

As a result of such concerns, airline stocks showed notable losses Thursday. Texas Air, the holding company that owns both Continental and Eastern, dropped $1.125 to $44.75; AMR, parent of American Airlines, fell $1.50 to $58; NWA (Northwest) dropped $3.875 to $63.75; UAL (United Airlines) fell $1.875 to $53.365, and USAir Group fell $1.625 to $40.125.

The announcement caught other carriers by surprise.

United spokesman Charles Novak said: “Certainly this is a fare war. It will cause an erosion of yield. United will match the new Continental and Eastern fares on routes where we are competitive. In short, we are going to selectively apply the new fares to remain competitive.”

A spokesman for American Airlines said, “We’re pulling together a fare structure competitive with Continental and Eastern. The details are still being worked out.”

Late in the day, Northwest Airlines said it will match the new Continental-Eastern fares on routes where they compete with similar service.

Plaskett said the new fares--available only on round-trip purchases--will take effect Sunday, the day that Continental absorbs People Express and New York Air. Continental, Eastern, People Express and New York Air are all subsidiaries of Chairman Frank Lorenzo’s Texas Air Corp., which has become the nation’s largest airline company.

The fare cuts indicate that Lorenzo intends to act quickly to undercut his competitors in order to gain market share.

The new fares, dubbed “Maxsaver,” will be available until at least May 20, and, Plaskett said, “It is our intention to make this a permanent part of the (fare) structure.”

Continental plans to sell up to 2 million seats a month--40% of its capacity on all of its 3,600 routes between 108 mainland U.S. airports--at the new, lower fares, he said. John Nelson, Eastern’s vice president for marketing, said his airline intends to use the new fares for as many as a million seats a month--between 10% and 20% of its capacity.

Two of the major restrictions on the new fares--non-refundability and the requirement that tickets be purchased at least two days before flight time--contrast sharply with low-fare rules in effect at most other airlines.

Current discount fares called “supersavers” have requirements that tickets be purchased from seven to as many as 30 days in advance and carry cancellation penalties of 10% to 50% of the ticket price. The Continental and Eastern fares are totally non-refundable, except that, like the supersaver fares, exceptions will be made for ticket holders who have emergencies such as illness or death in the family. But they must document their claims, and no cash refunds will be made.

Passengers who have lesser troubles, such as flat tires or traffic jams on the way to the airport, will be placed on the next available flight provided that they reach the airport within two hours of their scheduled departure time. No matter what the emergency, no money will be refunded. There will only be rebookings.

In the past, such non-refundable fares have been used by some airlines for limited periods on some heavily traveled routes and at holiday periods. However, Thursday’s action by Continental and Eastern represents the U.S. airline industry’s broadest use ever of the no-refund policy.

Continental’s and Eastern’s new fares will be available at two levels. The lowest fares will be available every day of the week except Friday and Sunday, when fares will be slightly higher. Plaskett said the new fares will be up to 40% less than supersavers and more than 80% off regular coach fares.

Plaskett said the number of seats available at the new fares will be “capacity controlled,” as is the case with virtually all airline discount fares. In other words, only some seats on each flight will be available at the low fares, while others would be kept open for passengers paying the higher, regular fares.

Plaskett said that on some popular flights as few as 20% of the seats will be sold at the low fares, while on others there might be as many as 60%. Both Plaskett and Nelson said flights between New York and Florida are nearly fully booked now so few seats will be available at the new fares on that route. A similar situation exists on flights to the Denver, where the peak skiing season is now under way.