American Airlines Unveils Radical Plan to Cut Fares : Travel: Long-term effort to raise revenues favors last-minute, business fliers. Other carriers follow suit.

Triggering a major shake-up in domestic air fares, American Airlines on Thursday unveiled a new price schedule that dramatically cuts the cost of flying for business travelers and other passengers who make last-minute plans.

The move, which was immediately matched by other U.S. carriers, is a risky effort by the beleaguered industry to raise revenues and stimulate passenger traffic, which has suffered as a result of the recession and the Gulf War.

But the new structure could increase the cost of air travel for some passengers, some industry observers said, noting that savings will not be as great for travelers who previously have taken advantage of the deepest discounts.

Under American’s plan, the price of unrestricted coach fares will fall by at least 38% and that of first-class seats by 20% to 50%.

However, American, the nation’s largest air carrier, will also eliminate deep discounts for large corporate clients, government agencies and groups attending meetings and conventions.

Under the new structure, American will offer four fares: a first-class fare, a coach fare that can be bought until flight time and two discount fares--one requiring purchase 21 days in advance and another requiring purchase seven days in advance.

The discount tickets are still non-refundable, but the airlines will now allow passengers to use them on an alternative trip for an additional $25 fee. The airlines will continue to require discount-fare passengers to stay over a Saturday night.

The new fares went into effect Thursday for travel beginning Monday.

Under the new structure, the price of an unrestricted round-trip coach ticket between Los Angeles and New York would fall to $920 from $1,504. The cost of a round-trip fare purchased 21 days in advance would drop to $460 from $549.

So far, Alaska Airlines, America West, Continental, Delta, Northwest, United and USAir have adopted most of the new fare structure.

The lower fares are aimed primarily at appeasing and attracting business customers who have curtailed travel plans during the recession and complained about the large price gap between passengers who fly on short notice and leisure travelers who can take advantage of advance-purchase discounts.

Many business people cannot qualify for the deep discounts--sometimes nearly 80% off the regular coach fare--because of rules that require passengers to extend their trip over a Saturday night or to buy tickets from one to three weeks in advance.

“We are particularly optimistic about more travel by those who work for small businesses, who have cut back very heavily on travel,” said American Chairman Robert L. Crandall in announcing the new pricing schedule during a news conference in New York.

The carriers hope more people will buy the lower regular fares rather than taking the trouble to qualify for the deeper discounts. They also hope to generate more business in general and cut the cost of administering and processing the thousands of different fares now available.

However, if the new structure fails to increase traffic quickly, the industry, which has seen historic losses during the economic downturn, risks sinking much deeper into the red and contributing to the demise of the weakest carriers.

In the long run, American said the new fare plan could boost income by $300 million to $350 million a year. But in the short run, the new pricing system will probably cost American about $100 million in the second quarter, Crandall said.

American’s new structure eliminates all but 70,000 of the 500,000 fares in its reservation system. As a result, the carrier hopes to save $25 million a year by reassigning approximately 600 employees to new duties.

Travel agents, who earn a commission based on the price of the tickets they sell, also stand to see their income fall in the next few months under the new structure.

However, most were supportive of the new fare schedule, which dramatically reduces the hundreds of thousands of fares that are currently available.

“It’s a very aggressive program that will be very well received by our customers,” said Tom Nulty, president of Santa Ana-based Associated Travel Management. “Its simplicity is its best feature. Our agents will be able to handle more transactions.”

The lower fares might coax extra trips from business travelers whose corporate travel budgets have been frozen or reduced, said Jay Anderson, vice president at the Orange, Calif., office of USTravel.

“They might be able to get more travel out of the same budget,” Anderson said. “But not a lot is going to happen. I don’t think we are going to see the effects for 90 days or more.”

The recession and corporate restructuring may also dilute the impact of the lower fares.

Nancy Godfrey, travel manager at San Francisco-based Chevron Corp., said the fare cuts will not prompt many extra trips from the energy company.

“We are going through some restructuring right now . . . and people are concentrating on something else instead of travel. In the end, it will be good news, but I don’t think that will change (travel spending) for us right now.”

Companies that managed their travel costs carefully and took advantage of corporate and volume discounts may end up paying more under the new prices, said John Hintz, president of the National Business Travel Assn., a group of business travelers and travel agents.

“The best-managed companies might end up paying more,” he said.