Eastern's Troubles May Prompt Fare Hikes, Consolidation
WHEN the dust settles after the Eastern Airlines strike - probably by summer - the cost of flying, especially to and from a strong Eastern hub such as Atlanta, is likely to rise. Airline analysts are almost unanimous that Eastern's agonies are a step in a larger consolidation and shakeout that is undercutting price competition among airlines.Skip to next paragraph
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Not surprisingly, the average cost of flying has already risen on some routes. Last week, Piedmont raised some fares in the Miami market, American in the Detroit market. But the real cost is in the dearth of discounts.
``It's not so much a case of fares themselves having gone up, as that the inexpensive seats are at such a premium that they are very difficult to find,'' notes Richard Keeble, of Keeble Travel in Coral Gables, Fla.
But these are short-term disruptions. Whether Eastern is dismantled, sold, or merely shrunk, the airline system will have absorbed the change and reached equilibrium again by May or early summer, says Paul Turk, an analyst at Avmark Inc., an airline consulting firm.
Even with the loss of Eastern, the overall effect on prices would not be dramatic, according to Dan Smith, a spokesman for the International Airline Passenger Association in Dallas.
First, with 6 percent of the nation's air traffic before the strike, Eastern was already less than a major player. Second, notes Mr. Smith, ``The airplanes are still going to be there, and somebody's going to buy them.''
But the effect could be much more dramatic on prices to and from Atlanta, Eastern's largest hub, if Delta is left to dominate that market.
``Losing Eastern would not be insignificant,'' says Severin Borenstein, an assistant professor of economics and public policy at the University of Michigan. ``In places like Atlanta, it would leave a dominant airline and would raise fares substantially.''
This has already happened, he says, in hubs such as St. Louis; Minneapolis; Dallas; and Charlotte, N.C.
A study of St. Louis's Lambert Airport by the US General Accounting Office found that with TWA carrying more than 80 percent of the traffic there since 1986, fares to and from St. Louis rose between 13 and 18 percent during one year, twice the national average.
In the long run, the most important theme from the Eastern saga may be symbolic. Eastern could be the next in a series of airlines that have been gobbled up in an industry dominated by a few large carriers. And that worries some airline observers.
``The industry was already highly concentrated. This will simply exacerbate that trend of more concentration and higher ticket prices,'' says Paul Dempsey, director of the transportation law program at the University of Denver.
IN 1977, before deregulation, the top eight carriers had 89 percent of the domestic market. Today, the figure is 93 percent. Three quarters of the 210 scheduled air carriers certified by the federal government since 1978 have been gobbled up or have disappeared. According to Alfred Kahn, the chief architect of deregulation, full-fare air fares have risen by 156 percent since 1978 - double the inflation rate for the period.
Average fares have risen less than the Consumer Price Index, however. Flying remains mostly cheaper today than before deregulation, Mr. Turk says.
``We will come full circle on this,'' Mr. Dempsey says of deregulation. He predicts that Congress will step in and reregulate the airlines.
But some analysts take another view.
Airlines are only now stabilizing after a decade of turmoil, says Richard Bilotti, an airline analyst at Prudential Bache. ``It's unbelievable that an industry could operate for 10 years at 65 percent capacity.'' That means that the average flight is 35 percent empty.
The companies have begun to solve their overcapacity problems with differentiated pricing - charging the must-travel businessman a lot more than the possible tourist who has months to plan a vacation.
This pricing fills seats and eventually, when 80 percent or so of the average flight is filled, could allow the carriers to hike air fares substantially.
But that will take years, Mr. Bilotti says. ``You still have vast quantities of empty seats - and that's the best type of competition.''
The US Department of Transportation and the General Accounting Office, now each have studies of airline competition under way.