Competition Sparks New Air Fare Cuts : Airlines: American moves to match rival carriers after they undercut its recent simplified pricing system.

Raising the prospect of a bloody air fare war, American Airlines on Monday lashed out at competitors that had undercut its much-touted simplified fare schedule.

The nation’s largest airline temporarily slashed prices and eased some restrictions to match America West, Trans World Airlines and USAir, which had all either lowered fares, or whose existing prices had remained below those in American’s new fare system. Some of those carriers may now respond by lowering fares even further to maintain their price advantage, industry observers said.

On the heavily traveled Los Angeles-New York route, for instance, American took aim at TWA by lowering its unrestricted, round-trip coach fare popular with business travelers from $920 to $700--matching TWA--for tickets purchased through May 20.

“TWA could chose to reduce business saver fares yet another notch and invite yet another similar response from the industry,” said Samuel C. Buttrick, an airline industry analyst with Kidder, Peabody & Co.

TWA did not immediately respond to the fare cut.

Ironically, American returned to the temporary, discount-pricing strategies that it had sought to eliminate under the four-tier fare plan that Chairman Robert Crandall unveiled less than two weeks ago. However, American said it was in no way abandoning the new pricing system.

“We are making these selective responses to an extremely competitive marketplace, but are retaining the simple, straightforward pricing structure we announced 10 days ago,” said Michael W. Gunn, American’s senior vice president for marketing. “By doing so, we are continuing to make air travel available to everyone on equal terms.”

Under American’s streamlined pricing system, the airline offers four basic fares on most routes: an unrestricted coach fare that can be purchased anytime; first-class; a seven-day, advance purchase discount fare, and a 21-day advance purchase fare. On Monday, however, American said it will drop the 21-day, advance purchase requirement in favor of a 14-day period.

In the price cuts announced also Monday, American reduced unrestricted coach fares in 1,500 markets--including coast-to-coast routes--beginning today through May 20.

In the Southwest, American responded to America West by reducing regular and discount fares in about 400 markets. On discount flights between the Northeast and Florida, American matched a fare sale by USAir.

“We probably haven’t seen the bottom yet,” said Thomas Nulty, president of Santa Ana-based Associated Travel Management. “I wouldn’t be surprised to see the airlines make another move. It’s the only weapon they’ve got--price.”