Consumer Group Says Air Fare Wars Need Encouraging

California Common Cause warned Thursday that the new low air fares now available on flights between Northern and Southern California might not last long.

The 55,000-member public interest group advised consumers to examine the motives behind the fare reductions, which come after about 18 months of fare increases ranging up to 200%. Also, Common Cause stressed that low fares will remain only if consumers find ways to encourage more competition on intrastate routes now dominated by USAir, American, United and Delta. California has not seen such low fares since the years when PSA and Air Cal competed aggressively for intrastate passengers before they were gobbled up by USAir and American in 1987.

“Despite this week’s reductions, we’re concerned that the long-term direction in California intrastate routes might be toward less, not more, airline competition, and towards higher, not lower, fares,” said Common Cause Executive Director Walter Zelman.

Southwest Airlines, a Dallas-based regional serving 30 cities nationwide, started the fare-cutting by stating in early April that it would inaugurate its service to Oakland with an unrestricted $98 round-trip fare for the routes from the East Bay airport to the Ontario airport in San Bernardino County and to San Diego.

But the round of price cutting got under way in earnest last week when American announced a $98, seven-day advance purchase, round-trip fare between three popular Southern California airports and two Northern California airports.

The major carriers quickly followed suit, including making an attempt to match an earlier $58, 21-day advance purchase fare implemented by Southwest Airlines for certain routes. USAir most recently extended the cuts further, in particular extending the previously unavailable $58 fare to passengers departing Los Angeles International for Oakland and providing an alternative $78 advance purchase fare on several other North-South routes.

Prices Rise Elsewhere

All of the major carriers have now matched USAir’s $78 fare. The fares announced in recent days are substantial reductions from the previously prevailing $124 advanced purchase ticket and a regular $296 fare on North-South routes.

While there is a wave of price competition here now, prices are rising elsewhere. According to the Air Transport Assn., an airline industry trade group, on the average air fares across the nation are rising dramatically. Analysts say rising crude oil prices may be a major factor. The corridor between Northern and Southern California is the nation’s busiest with more than 200 flights a day and an estimated 2.1 million people flying annually between the Los Angeles and San Francisco airports alone.

“To the extent that these new reductions by major carriers simply reflect the need to match fares of a new competitor, the competitive mechanism may be working as expected,” Zelman said. “But to the extent that they represent an effort to warn Southwest or other potential competitors that the major airlines will do anything necessary to prevent new entrants into intrastate markets, today’s air fare wars could have long-term negative effects on California air fares.”

If the motive was to scare away competition, then the low fares will be a fleeting phenomenon, Zelman said. He said the airlines should be monitored closely because if they are losing money on the new fares, then questions of possible antitrust violations can be raised. “If airlines can make reasonable profits at $120 or $200 round-trip between Los Angeles and the Bay Area, what were they making last week at $300?” he said.

Encourage Competition

The fact that fares in California did not decrease until Southwest opened up routes from Southern California to Oakland proves the need for more competition, Zelman said. All of Common Cause’s research indicates that the major airlines “competed with each other less aggressively” before Southwest entered the picture, he said. The city of Oakland did everything it could to encourage Southwest to serve the airport, he said. “Oakland enticed Southwest with the results that we’re now seeing. Maybe it’s worth some cities’ while to think about getting more gates (at their airports) and enticing small airlines into the market,” he added.

American didn’t react to Southwest, said spokesman Ed Stewart. “Since we inherited the Air Cal routes we have been constantly reevaluating fares.” The new fares are here to stay for “the foreseeable future,” he said.

USAir said it reduced fares for a variety of reasons, including the necessity of matching the American fare cuts.

How long the fares will last “is hard to say,” said a USAir spokesman. He asserted that the low PSA and Air Cal fares were “unrealistic.” The fare level just prior to the recent reductions were just coming up to the national level, he said.