Fare wars aloft: no sonic boom for most
Boston — The US airline industry is caught up in another round of fare wars aimed at luring business and other frequent travelers to fly coach. For occasional travelers, however, the new promotional fares will be about as satisfying as an airborne meal of mystery meat, anonymous vegetable, and congealed mashed potatoes.
With promotional trumpets blaring, six carriers last week announced reductions in the coach fares. Leaner fares on selected domestic and overseas routes were unveiled with a flurry of full-page newspaper and advertisements by American Airlines, Trans World Airlines. Pan American World Airways, United States, British Airways, and Laker Airways.
The effect on airline profits from cuts on the domestic routes will likely be about as great as a 5-mile-an-hour wind on a Boeing 747 jumbo jet. The domestic cuts are of "no real significance," says David F. Campbell, an analyst with Wheat First Securities.
The cuts in the international fares are deeper, and could put airline profits in greater turbulence. "There will be a lowering in the total yield [revenue]" from flying an intertional mile, predicts Barry Gordon, a market analyst with National Aviation Corporation, an investment fund.
The reason the recent cuts are not a great boon for the average flier, analysts say, is that they are for class of tickets most people don't use. "Eighty percent of all passengers are flying discount fares," says Mr. Campbell.
Why the special effort to get businessmen into coach? "We have been concerned about the diversion of business travelers to supersaver fares," and an industry executive who asked not to be named. "We are trying to make it less advantages to do that."
In the short term, the airlines will likely succeed in getting more fliers into coach seats, since, in some cases, the newly announced fares are cheaper than supersaver. For example, American Airlines slashed the $600 round-trip fare between Boston and Los Angeles to $438, and it doesn't require advance purchase or a minimum stay, as does supersaver. By contrast, the day supersaver fare between the two coasts is $450 round trip.
But Mr. Gordon at National Aviation notes that airlines put up the supersaver fares before cutting coach prices. "What they have done is lower their regular fares and bring up their discount rates," he says.
Admittedly, the drop in coach prices is pronounced. Like American, United has dropped its round-trip transcontinental fare to $438 from other Eastern cities. "That is a significant change," says Alfred Norling, an analyst at Kidder, Peabody & Co.
"Nevertheless," he adds, "$219 one way is probably more than the average person paid until recently. A year ago the discount fare was $159, with few restrictions. So this is not a severe reduction in revenue" for the airlines.
"If discount fares are raised and full fares have declined, it raises the [ airlines'] yield" per passenger-mile, an industry executive says. This is because more individuals fly using the discount fares.
The lower domestic fares are expected to disappear in November as the holiday season approaches and travel picks up. "But it traffic remains weak on the transcontinental routes, discounts could remain there until spring," says Gordon.
However long the cuts last, most analysts do not expect the promotional fares to have much bearing on the financial statements. "This will not help any carrier that is in distress," says Campbell at First Wheat. "But won't necessarily hurt."
While Wall Street sees little negative effect from the domestic cuts, they do wonder about long-term fallout from cuts in the international market, which were by a bigger percentage. For example, the Los Angeles-to-New York coach fare has been cut 37 percent, while Pan American last week slashed its San Francisco-to-London coach fare almost 60 percent, from $961 to $396.It cut its New York-to-London fare in half, from $526 to $261.
And observers worry that the fare cuts in the London market could take off elsewhere. "My fear is this will start a fare war on all [international] runs," says Gordon at national Aviation.
That concern seems to be shared by some in the industry. Late last week Sir Freddie Laker, chairman of Laker Airways, complained that the Pan Am fare cuts, which will match Laker fares Nov. 1, "are nothing less than suicidal marketing and could endanger the fabric of the airlines industry as a whole."