Gradual rise in air fares and fewer discounts expected. Airlines increasingly work with economics of volume
Those discount air fares, which have persuaded many more Americans to take to the skies, may soon be harder to find and wrapped in tighter restrictions. But that expected shift, coupled with gradually rising regular fares, may not occur for some months, say airline analysts.Skip to next paragraph
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Just how and when these changes come may be largely determined by competition, which has become extremely strong among airlines since federal regulation of routes and rates ended in 1978.
Still, some who monitor the industry closely say the full reentry of United Airlines into the market, when the pilot strike is settled, may even prolong or spark a resurgence in discount fares.
``When United does come back, the company might start to put in lower fares to regain some of its traffic for a short period of time, and then all the other airlines would follow,'' says Barry Gordon, President of the National Aviation and Technology Corporation, a mutual fund specializing in aviation.
The cut-rate fares have been highly successful in terms of attracting passengers. Airline traffic has been increasing by more than 10 percent a year. Most airlines now report strong advance bookings. And 1985 is expected to be a record year for airline earnings.
But 85 percent of all airline passengers now use some type of discount fare. And the average fare per passenger mile is decidedly down. Because of this, most airlines are working hard to make up for lower ticket prices by increasing traffic.
``I know it sounds like a car dealership, but the economics of the industry are based more on volume than they used to be,'' says Air Transport Association spokesman Bill Jackman.
Still, some airlines manage that job much more skillfully than others.
``The differences among individual companies and their performance has widened enormously,'' says Julius Maldutis, an analyst with Salomon Brothers Inc.
In recent years most airlines have become more sophisticated in determining what portion of seats on each flight they can profitably set aside for discount fares.
But Mr. Gordon says that allowance and its use by discount passengers are now close to the saturation point. ``Not that many more people can fly on discount fares than are already doing so,'' he says.
``I think you'll see more and more restrictions . . . in order to keep people from switching over who would otherwise travel full fare,'' adds Lee Howard, executive vice-president of Airline Economics Inc., a consulting firm.
Many airline analysts predict that competition will result in fewer choices for passengers among airlines in the years ahead. They say the current trend of growth and consolidation among larger carriers will continue until six or eight may dominate the industry by the end of the decade.
George James, president of Airline Economics Inc., says he thinks another 20 or 30 airlines will still keep 10 to 15 percent of the market. But he notes that four carriers (United, American, Delta, and USAir) last year accounted for 62 percent of the industry's operating profit.
Fueling the trend to a degree has been the fact that 120 small and medium-sized airlines have gone out of business since federal regulation eased in 1978. Airline bankruptcies during the last two years have averaged one a month.
But Michael Walker, who monitors the economic patterns of smaller airlines for Legg, Mason of Baltimore, predicts that some of the smaller airlines such as Piedmont and Jet America will soon start to take back some share of the longer routes.
``The consensus these days seems to be that United and American are going to own the world . . . but there's always room for somebody else to come in and grab a niche underneath. . . . I just don't think air service in this country is ever going to be ruled by two or three companies.''