Airline Plans to Base Fares on Miles Flown : Fares: American said simplification will end ‘illogical’ prices.

American Airlines said Thursday that it will put into effect next month new excursion fares--based on miles traveled--in an effort to simplify its fare structure for passengers.

Spokeswoman Mary O’Neil explained that as a result of competition on many routes “illogical fares have crept into the formula.”

When one airline raises or lowers a fare, other carriers almost always match it on the same route, she explained. Such competitive actions can produce situations in which fares are higher on some shorter flights than they are on certain longer ones.

One example: While there are 548 route miles between Dallas and St. Louis and 571 miles between San Jose and Portland, Ore., it costs more to fly from Dallas to St. Louis than from San Jose to Portland. Excursion fares for the first pair of cities are $301 during peak hours and $260 off peak; for the longer flight, fares are $280 peak and $239 off peak.

Under the new system, fares for both trips--because they are so close in mileage--will be $274 peak and $238 off peak.

American said there will be increases on some routes and decreases on others but that the changes in either case will be “modest.” Peak fares under the new structure will be 15% more than off-peak fares, it said, and the less-restrictive seven-day advance-purchase fares will be 20% more than the deeply discounted 14-day advance-purchase fares.

American’s excursion fare between Los Angeles and Washington will decline $8 off peak to $418, but the peak-hours fare will rise $13 to $481.

Airline observers said carriers frequently take an action such as American announced in order to get their fares back in line. American would hardly take any fare action unless it raised total revenues, they added.

“It is likely in the worst case to be a wash and in the best case to be additive for the company,” said Paul Karos, airline analyst for First Boston. “American does not pursue a strategy of lowering fares in an attempt to gain market share. They believe in going the route of improving the service product.”

Michael W. Gunn, American’s senior vice president for marketing, said the plan “eliminates peculiarities in the existing fare structure which sometimes makes it more expensive to fly to the next state than halfway across the country. We are simplifying the formula so all affected markets receive equal treatment.”

Other major airlines said they were studying American’s action. Trans World Airlines said it had quietly instituted similar changes a few days ago.