Lower Air Fares for Consumers Not in the Cards : Airlines: Remember when it cost $16 to fly from Los Angeles to San Francisco? Then you remember the days before deregulation. Since then, prices have soared.

Has airline deregulation worked?

It is the great continuing argument among government regulators, members of the travel industry and, for that matter, anyone who travels.

Most airline officials argue that it has worked to the benefit of the masses, that it has popularized commercial aviation and that fares, on the whole, have decreased. These same officials say they have the numbers to prove it.

Since the beginning of airline deregulation in 1978, the number of passengers has almost doubled (more than 456 million in 1988, the last year for which complete data was available), while air fares measured in constant dollars declined 20%.

Proponents of deregulation also argue that passengers today enjoy more airline choices. In 1978, airline passengers could choose from two or more airlines only 69% of the time. In 1988, they had a choice 89% of the time.

In fact, one study shows that the nation’s travelers have benefited by more than $100 billion in fare savings since 1978.

It all sounds pretty good. So why are many air travelers complaining?

In California, where regulated intrastate air fares could get you between Los Angeles and San Francisco for as little as $16 at the beginning of deregulation, the one-way fare has recently been as high as $186. A Los Angeles-Sacramento round trip, which once cost less than $30, now can run as high as $213!

The rest of the country has experienced a similar explosion of high air fares, especially on the high-density commuter runs between Chicago and New York, Detroit and Chicago, and on New York shuttle flights to Washington and Boston.

Passengers flying from cities such as St. Louis, Minneapolis and Dallas are often shocked--by their lack of choice in airlines and by the diminishing number of carriers on certain routes. Consumers looking for reasonable air fares on these routes are often finding themselves out of luck and paying high air-transportation bills.

Why is this happening?

One reason is something called “yield management”--the practice of controlling the inventory of seats available at specific fares on specific flights on specific days. Virtually every airline now follows this yield management routine, which tends to limit most discount seats if there is a strong demand for particular flights.

Another reason has been the development of “fortress hubs,” airports that are essentially monopolized by a single airline. In Pittsburgh, for example, USAir has a staggering 84% of all flights in and out of that city. TWA controls 82% of the traffic out of St. Louis. And Minneapolis is dominated by Northwest, with 80% of the flights.

In these fortress hubs, passengers have sometimes paid fares as much as 50% higher than fares for similar flights (and distances) in other parts of the country.

A third reason is the myth developing that deregulation has stimulated competition among airlines. In truth, in a deregulated marketplace, the only real competition is waged between existing, longstanding airlines.

Recent history indicates that new airlines just don’t survive. And this is unfortunate. It is, it seems, also inevitable. Airlines may be deregulated, but airports are not. New airlines often experience great difficulty in obtaining gate space from the large carriers that apparently control the supply.

And even if a new airline can get a gate, the only weapon it has to attract new passengers--low fares--will almost immediately be turned against them when competitors also lower their fares.

Knowing that they have both loyal and frequent passengers, thanks to major marketing tools such as frequent-flier programs, the big airlines match the low fares.

The philosophy of the fare-matching by the big carriers has nothing to do with attracting new business or making money. Instead, the low fares are matched by the big carriers because they have deep pockets--they know they can lose money longer at these low fares than the new airline. And, more often that not, the new airline soon goes out of business (in many cases even after flying planes that are 100% full).

The big airlines argue that this merely represents healthy competition. Except that in almost all cases, when the new low-fare airline goes out of business (or is otherwise sold/merged or consolidated into another carrier), air fares rise. One study by the U.S. General Accounting Office indicated that ticket prices at these fortress airports have indeed risen faster than at other airports.

The U.S. Department of Justice is now investigating this development--the domination of major airports by one or two large carriers.

Already, federal prosecuters have asked USAir to provide specific information about how gates will be allocated at a new passenger terminal at Greater Pittsburgh International Airport. Key to the investigation is whether the airline (which already dominates Pittsburgh) has any arrangements with the airport that would make it harder for a new airline to try to start service there.

(The Justice Department had previously opposed the mergers between TWA and Ozark, and betweenNorthwest and Republic. But the deals were approved by the Transportation Department, which had authority in these cases.)

While the investigation continues, the most passenger gripes are coming from those who insist they are being gouged on short-haul flights: St. Louis to Springfield, Ill. ($189 one way); Los Angeles to San Francisco ($186 one way), and the shuttle fares in New York ($119 each way to Boston or Washington).

But the airline lobby insists that these fares are not excessive. They claim that the average air fare between Los Angeles and Sacramento is 80% of the fare for routes of the same distance elsewhere in the United States.

But does that make things fair for travelers?

Obviously not.

“I can buy the argument that airline labor and other related costs have increased since deregulation began,” says Los Angeles public relations executive Joseph Cerrell, a regular passenger on the Los Angeles-Sacramento run. If anyone remembers low air fares on that route, it’s Cerrell. Back in 1967, his second-biggest client was PSA. Los Angeles to San Diego was $6.67, San Francisco from LAX went for $12.

“The Sacramento fare was $14.50,” he recalls. “I can accept that I wouldn’t be paying that fare today. But how can an airline justify charging me $426 to fly between Sacramento and Los Angeles? On some airlines, for just a little more or a little less, I could fly between Los Angeles and London.

“Given the choice between Sacramento and London, I think I’d choose London. After all,” he says with a laugh, “I’d get more mileage, have a meal and even see a movie or two on the way. OK, the airline has a valid argument that it costs them more to operate in 1990. But in the 10 years since deregulation, have the airline costs risen more than 15 times? I think not.”

Indeed, there has been a strange twisting of events. During regulation, the federal government set short-haul fares below cost and long-haul fares above cost. And now, since deregulation, the exact opposite has occurred.

In California, some legislators have attempted to pass legislation to correct this imbalance.

First, State Sen. Art Torres (D-Los Angeles) introduced a bill that would have created a state-run airline, a sort of legislative challenge to the airlines to lower their air fares in the California intrastate market. The bill was defeated when the airline lobby argued that the cost of the airline would cost taxpayers money.

However, the California Senate did pass legislation that would require airlines to give up unused airport gates or pay a fine of $2,500 per day--an attempt to let new airlines into the marketplace.

In the meantime, how do you go about trying to secure a low air fare?

You can do your own form of comparison shopping, calling airline toll-free reservation numbers until you find a fare you can accept.

You can also find a travel agency that uses a computer program called “Fare Assurance,” a program that automatically--and without bias--searches for new, cheaper air fares.

You can also subscribe to something called “Best Fares,” a monthly publication that lists all the published coach fares for hundreds of possible itineraries. A one-year membership costs $68. Call them at (800) 635-3033.

But in the long run, a San Francisco firm called Marketel thinks it may have the answer: Put airline tickets on an electronic auction block, a sort of futures market for air fares.

“It’s only a matter of time,” says Marketel founder and senior vice president Bill Perell, “before the negative aspects of airline oligopoly forces the government to re-regulate. The airlines don’t want this, but at the same time, the airlines haven’t allowed the consumer to express his/her fare preferences.”

Under the Marketel plan, prospective airline passengers would electronically submit their bids for seats on specific flights via their home personal computers. The request would list departure dates, times and the price the passenger is willing to pay. Airlines would then review the bids and pick the ones they wanted to accept.

As in a typical commodities market transaction, the computer would compare bid prices with anonymously placed “sell” orders by the airlines and then make a match. (This would also apply to hotel rooms and rental cars.)

These passenger bids would be firm fare offers, backed by a credit card. If the airline accepted the bid, the passenger would then be charged for the ticket--presumably at a lower-than-published price--and the airline would be able to better allocate their seats.

“It would work well for everyone,” says Perell. “For some folks, it would eliminate the six-day madness that occurs when people needing to make a plane reservation discover they just missed the cutoff for a lower seven-day, advance-purchase ticket.

“Also, because of the lower fares inherent with bidding most flights, the airlines would receive additional revenue from travel that might not otherwise occur because of high quoted fares. In today’s market, everyone is a discretionary traveler.”

Marketel expects to have its system up and running later this year. Once the system is in place, airline passengers may have at their disposal their first direct chance to influence air fares in their favor.

With luck, the hunt for lower air fares will then be made that much easier.