Continental Reduces Fares Up to 20%; Others to Match Cuts in Competing Markets

Continental Airlines, trying to stimulate traffic in a normally slow season, Monday slashed fares an average of 15% to 20% and a number of other carriers said they will match the move in markets where they compete with Continental.

Also, Eastern Airlines, which like Continental is owned by the Texas Air holding company, said Monday that it will make similar fare reductions for flights to and from Florida, where it is based. Eastern and Continental carry about 20% of the nation’s airline passengers.

Northwest Airlines also announced fare cuts Monday and United Airlines and Delta Airlines said they would remain competitive with Continental. American Airlines spokesman James R. Brown said “we are studying” the reductions. “This is too complicated to make a decision in one day.”

While the fare cuts are substantial, they will not bring the cost of flying down to where it was last February, when Continental stunned the industry and set the pace by reducing ticket prices as much as 70% below the full-fare rate for coach seats. At that time, transcontinental fares were brought down to $99. This year the fares are again about 70% off full coach fares, but the lowest fare is $119.

Under the plan announced Monday, Continental’s Maxsaver coach fare between Newark (the New York City area airport that Continental serves) and Los Angeles will drop from $134 to $119 each way. The restricted fares will be effective Wednesday.

“These fares are significantly higher than they were a year ago at this time,” said Michael Derchin, airline analyst with the New York brokerage of First Boston Corp. “They won’t hurt profits, but they will only be neutral to a little positive.”

Kevin Murphy, airline analyst with Morgan Stanley, another New York investment firm, said the cuts were not unexpected. “We see this every year at this time,” he said. “It is seasonal stimulation and it is not permanent.”

In a novel aspect of the new fare tactic, Continental said it will allow passengers who pay full coach fares--not the new, restricted fares--to fly first class with confirmed reservations if they belong to the Continental-Eastern frequent flyer program. Previously, members could stand by before flights for upgrading to first class if seats were vacant.

In effect, the new plan would reduce Continental’s one-way, first-class fare between Newark and Los Angeles to $350 from $505. The same would apply to a flight from San Francisco to Newark. If first class is full, a passenger will now be able to buy an unrestricted coach ticket on such routes for $250 one way. In comparison, American Airlines’ first-class, one-way fare between John F. Kennedy Airport in New York and Los Angeles International Airport is $828; between Newark and Los Angeles, it is $545.

Timothy Pettee, airline analyst with the New York brokerage of Bear, Stearns, said Continental’s plans for first class are “worrisome.” Noting that about 12% of all airlines’ revenues are from first-class business, he said, “It is bad if you start discounting the most profitable part of your business.”

Mileage Programs

United said through a spokesman that it does not plan such a move involving first-class fares. “I don’t even want to talk about that one. It would be uneconomical,” United spokesman Matthew P. Gonring said. Other carriers said they are still studying the plan.

James V. O’Donnell, Continental’s vice president for marketing, said the reason for the fare reductions and the first-class plan is to generate additional passenger traffic during the winter off-season. He added that he expects the plans to be moneymakers: “While market share is a factor, we are really interested in (improving) the bottom line.”

However, O’Donnell said, Continental will lose money for all of 1987. Analysts said Continental’s losses for the year will be substantial and that Eastern will also lose money, but not quite as much.

Continental also said it is lowering advance purchase requirements for the new Maxsaver fares from seven days to the original two days that were required when they were initiated last February. Other carriers have attempted in recent months to increase the advance purchase requirement for non-refundable tickets to 14 or 30 days.

Continental’s Maxsaver fares are non-refundable and require a Saturday stopover. The number of seats available for the low fares will be limited to 30% to 35% of the total, O’Donnell said. The fares require round-trip travel and will cost slightly more during the peak travel period of noon Thursday to noon Monday. Most of the low fares will be in effect until May 20, the company said.