Airlines Once Again Declare War Over Air Fares

I’ve got good news, and, if you can get over two major obstacles, better news. The good news is that the airlines have once again begun a major fare war.

Just when most observers thought that a fare peace had broken out, that airline mergers had reduced competition to the point of eliminating most fare discounts, Continental Airlines announced new discount fares that other airlines were forced to match.

And because Continental has become a giant, assuming the routes and planes of People Express and New York Air, the announcement was hard to ignore. “There has been increasing concern that as the number of airlines shrinks, low fares will go away,” Continental President Thomas Plaskett says. “The introduction of this fare package will put those fears to rest.”

Prices in the Past

A year ago, in the midst of another fare war, the one-way fare between Dallas and Denver was only $64. Last month the same itinerary would have cost you $148. Chicago to Los Angeles was $138 one-way in January, 1986. Last month the same ticket would have run $183. And Denver to Los Angeles in January, 1986 cost only $49. Last month it averaged $150.

Not any more. When Continental and Eastern (both now owned by Texas Air) launched their MaxSaver fares, the air war cease-fire ended. New York to Chicago suddenly became a $49 ticket. A flight between Los Angeles and Springfield, Mo., dropped substantially, to $69. And long-haul flights--Los Angeles to Washington, D.C.--were sold at only $89.

The idea of a fare war at this time of year is not exactly surprising. Traditionally, airlines fly empty in the midwinter season. In the recent past, airlines have promoted supersaver fares to sell unfilled seats. But the fares carried a host of restrictions that angered both passengers and travel agents.

There were substantial penalties for flight changes, and most tickets had to be bought at least 30 days before departure. As a result, passengers who had to change their flights were stuck with an additional charge for the rewriting of their tickets. And travel agents had to work that much harder for the same commission on an already discounted fare.

Under the Continental/Eastern package the bargain fares are nonrefundable. And the tickets only carry a two-day advance purchase requirement. The fares, good through May 20, are 80% lower than standard coach fares. (This compares with a typical supersaver fare that’s roughly 70% less than coach but carries a 50% cancellation penalty.)

Within days of the Texas Air announcement, virtually every other major airline has announced that it has matched the Texas Air fares. And some airlines even removed some restrictions.

Advance Purchase

For example, the Continental MaxSaver fare between Los Angeles and New York is $89 each way (based on round-trip purchase). Other Continental restrictions: passengers flying on the tickets must stay over at least a Saturday night, with a two-day advance purchase required. The Saturday night required stay was implemented to keep business travelers from using the tickets.

And some carriers, such as U.S. Air, require that passengers flying on the deep-discount tickets cannot begin the return portion of their trips before the first Sunday following departure. But some other carriers, like Pan Am, have removed most of the restrictions.

With Pan Am’s “best-buy” fares, no two-day minimum advance purchase is required, a Saturday night stay is also not required, nor do passengers have to buy a round-trip ticket to qualify for the low fares. About the only restriction Pan Am has kept is the non-refundability of the tickets.

“It didn’t really catch us by surprise,” says James Arey, Pan Am spokesman. “We’re used to fare initiatives. We want to stimulate travel during wintertime.”

And stimulate travel they have. Airlines report that their reservations centers have been swamped with calls. But keep in mind that, without exception, the airlines have put capacity controls on each of their flights.

Not every coach seat is being sold at the low fares. For example, almost every Pan Am and TWA flight to New York connects with an international departure. The airlines will thus “protect” a certain percentage of the seats on each flight for international passengers. However, on some feeder flights the number of available seats on the low fare could run as high as 75%.

‘Looking to Break Even’

Can the airlines make money at these fares? “Look at it this way,” PSA spokesman Bill Hastings says. “If your planes are flying with only 48% of the seats filled (PSA’s load factor for January), it’s not a question of making money. Once an airline seat leaves empty, you can never recoup any revenue. We’re just looking to break even by filling all those seats.”

Some airlines think that Pan Am is being too loose on its discounting. American Airlines, which claims it has allocated 2.5 million seats to the new fares, has announced that as of March 1 it will remove the two-day advance purchase requirement and replace it with the traditional 30-day advance restriction.

American is also selling another kind of ticket after March 1. You can buy your tickets up to seven days before your flight (or 14 days after you make your reservation, whichever comes first). The fare is as much as $80 higher per round trip than Continental’s MaxSaver fares, and if you don’t go, you get stuck with a 25% penalty. (If this sounds confusing, it is.)

At this writing, no other carrier has matched the American plan. “If anything,” United spokesman Chuck Novak says, “it should dramatically reduce our no-show factor. A low fare is one thing, but a non-refundable ticket seems to work wonders at getting people to make their flights.”

What about business travelers, who seem to be blocked out by the new fares? “We couldn’t just give everything away,” Western Airlines spokesman Glenn Bozarth says. “We had to protect our revenue from business passengers. That’s why the Saturday night stay requirement was instituted industry-wide. And we also protected travel agents. Now, whether their clients fly the flights they’ve booked or not, their commissions are locked.”

Two Obstacles

I mentioned two obstacles to all this good news: the Saturday night stay and the non-refundability of most of the tickets. Many savvy travelers have simply decided to make weekend trips to satisfy the Saturday rule. And the fares are so cheap that the non-refundable issue doesn’t seem to be generating many protests.

Finally, what about business travelers, most of whom can’t stay over on Saturday? A number of them have also found a way to benefit from the new fares and still officially play by the rules. For example, if a business traveler has to visit the same city, let’s say Chicago, more than once between now and May 20, and knows his dates in advance, he can save a lot of money: he buys two discount round-trip tickets.

One ticket reads Los Angeles-Chicago-Los Angeles. The other ticket is bought on a Chicago-Los Angeles-Chicago routing. He uses the first ticket to fly to Chicago. He uses the second ticket to “return” (although he’s officially just beginning his trip). He reverses the process for the second trip. He’s officially stayed over one Saturday night, when in fact he could easily have left Los Angeles on a Monday and returned on a Friday.

One caution: If his schedule changes, he’s eaten both tickets, although at these fares it just might be worth the risk.