Some Worry That Cut-Rate Air Fares in State Won’t Last

The airlines serving California appear to have achieved their goal of increasing traffic in the important air corridor between Northern and Southern California--the nation’s busiest with more than 200 flights a day--by dropping fares.

But many travelers worry that the good times may not last long. And others say they are not that good anyway.

American Airlines says traffic on the corridor has increased 16% since discounted fares were announced a little more than a month ago. American triggered widespread discounting on April 27 when it posted fares as low as $29 one-way between Northern California and Ontario Airport in San Bernardino County.

Other airlines quickly matched the fares, offering round-trip fares of $78, $98 and $118--depending on which California airports the travelers chose and on how far in advance the tickets were purchased.

Travel agents agree that bookings are up since the new fares became effective. Gordon Engeberg, manager of the Ask Mr. Foster travel agency in Century City, said reservations through the agency have increased 32% for flights from the Los Angeles area to San Francisco Bay Area airports. Some business people apparently have been able to take advantage of the discounted fares, but agents say most of the increased traffic appears to be travel for weekend pleasure trips.

The $78 round-trip fare between Los Angeles and San Francisco--with a 21-day advance purchase requirement--came just in time for Grace Poole, an Oakland retail clerk, to hop on a USAir flight for a long Memorial Day weekend in Venice with a friend. “I wouldn’t have come if I’d had to drive. I haven’t been in the mood to make that drive since I was in college,” she said.

While consumers are enjoying the savings, it’s not all smiles in the California skies.

For one thing, the discounts followed steep fare increases that have been imposed since 1987. Also, opinion samples indicate that most consumers do not expect the fares to last long, and some are not convinced that they will get a discount fare on the flight they want even if they are able to book early.

And travelers to Sacramento are miffed because the Southern California-to-Sacramento routes were left out of the fare discounting. Although state government contracts for discount fares for state employees, the average consumer has to pay $378 to travel round trip from Sacramento to Los Angeles. The state government would pay $80 round trip for a state employee traveling the same route, according to the latest contract expected to be awarded to USAir.

Airline executives freely admit that the route was not targeted for general discounting because it is much less competitive than the routes between the airports in the Los Angeles and San Francisco areas.

Passengers departing for Sacramento from Orange County’s John Wayne Airport are about to have even fewer choices. Beginning July 1, American will ground its five daily nonstop flights to Sacramento, leaving USAir with the only nonstop service.

The move has incurred the wrath of state Sen. William Campbell (R-Hacienda Heights), a member of the Senate Committee on Tourism and Aviation. In a letter to Robert L. Crandall, president of Dallas-based American, Campbell complained that American had violated a promise made to the Senate committee in 1987.

He said American, during a hearing called to examine the impact of its acquisition of AirCal and USAir’s purchase of Pacific Southwest Airlines, had said it expected to make only minor changes in AirCal’s schedule.

Wants Probe of Rates

The cancellation of the nonstop flights from Orange County to Sacramento, he said, “would violate the spirit, if not the letter of that assurance.”

Other legislators are also looking skeptically at the airlines. A Senate resolution introduced by Sen. John Garamendi (D-Sacramento) and Sen. Art Torres (D-Los Angeles) seeks a Public Utilities Commission investigation of rates charged by the airlines on intrastate flights.

“The purpose of deregulation was to stimulate competition among air carriers. However, since the onslaught of mergers, the industry has become more concentrated,” Torres said at a recent press conference. “Today, essentially five carriers control nearly 80% of the (California) market. And commuter carriers who previously enjoyed independence have fallen under the influence of market dominators,” he said, noting that California is no longer home to any major airline.

Meanwhile, consumers are fed up with air fares that have “fluctuated like a roller coaster” since the mergers of 1987, according to Beth Bonbright, a consultant to the California Commission on Aviation. She added that some in Sacramento are betting that the current low fares will stay in place only until the current legislative session ends Sept. 15.

A possible motive for the discounting, Bonbright said, might have been a move among some legislators to eliminate the state sales tax exemption on jet fuel that commercial carriers have enjoyed since 1969. The exemption from the 2-cent-a-gallon tax has amounted to “about a $50 million gift to (the industry) from the state,” she said, while the carriers have not shown much gratitude.

“Prices have gone up and service has gone down. The frequency of delays is going up. The frequency of flights is diminishing. And there’s less service to some cities,” she said.

Few See Any Bargains

The industry used its influence to help defeat recent bills to remove the sales tax exemption, Bonbright said, but bills are sure to be reintroduced. Some legislators want to use the added revenue to relieve airport congestion and help solve airport noise problems, she said.

Across the nation, consumers seem to be growing disenchanted with air travel. According to the recently released spring travel survey by the U.S. Travel Data Center, only 13% of Americans believe domestic air travel is a bargain. That is a significant drop from the 32% recorded last year and the 45% who felt that way in 1987.

The data center--a Washington-based arm of the travel industry trade association--predicts that domestic air passenger traffic will remain flat this summer while automobile travel will continue a steady increase despite rising fuel prices. “In actuality, airline fares have increased much more than motor fuel in the first quarter of 1989,” the center’s report said.

Soft demand for air travel has perhaps been the most important factor in fare discounting this spring, said Daniel A. Hersch, an analyst with the Bateman Eichler, Hill Richards investment firm in Los Angeles. While the entrance of low-cost Southwest Airlines into the market was also a factor, he said, it wasn’t a major impetus because the airline competes on a limited number of routes. “Fares had gotten too high,” Hersch said. Most likely, he added, traffic had dropped enough to cause concern in airline executives’ offices.

The California market has a high concentration of business travelers, he added. And, while business travel is largely not price sensitive, price is not totally irrelevant, and fares may have reached a point where more people were doing business by telephone and making other arrangements.

Two-Tier System

The discounts are somewhat illusory, Hersch said. The discount fares do not mean that the carriers are collecting less revenue because of a two-tier pricing system. Passengers who cannot make plans in advance pay very high prices, while those who are able to plan in advance pay relatively low fares, he said.

New computerized “yield management” systems, he added, allow carriers to manipulate the number of discounted seats on individual flights in order to ensure a certain level of revenue. Yield management, he added, in effect gives carriers a low-profile means of raising the average fare.