War Fears Fade, Air Fares Drop, And People Revive Travel Plans
But analysts warn travelers had better grab bargains while they last
NEW YORK — LARGE sign in the window of Qantas Airways' Fifth Avenue office here shows a black slash through the usual $1,361 round-trip fare from the West Coast to Sydney. Until April 7 the price is a mere $799. Several United States airlines tout in newspaper coupons discounts of up to $100 a trip on domestic flights. Both American and Delta are pushing new spring promotional fares that their competitors have rushed to match.
In the aftermath of the Gulf war, the airline fare war is in full swing. Many travelers are now less skittish about terrorism but have put off travel because of the recession.
US airlines, which lost $3 billion just in the last quarter of 1990, are eager to lure passengers back with what some economic analysts call "fire sale" prices. So far the plan is working.
"We don't have any real figures in yet, but we're hearing from the airlines and travel agents that advance bookings look very good," says Air Transport Association spokesman Tim Neale.
Yet airline analysts say carriers are unlikely to continue discount pricing over the long term and that travelers should grab the bargains while they last.
The outlook for discount fares looks somewhat brighter - at least in the immediate future - for overseas travel where competition is increasing.
This month All Nippon Airways of Japan has inaugurated three weekly flights between New York and Tokyo, becoming the fourth carrier along that route.
In a major breakthrough reached by US and British officials just last week, United Airlines and American Airlines will acquire several of the US-to-London routes held by Pan American and Trans World Airlines, providing much-needed cash to those two ailing carriers and ensuring their immediate survival.
British Airways gained the right to schedule more flights through the US to other destinations and from the US to London and more places in Europe. Britain's Virgin Atlantic Airways also won the right to fly between London's Heathrow Airport and the US.
American and United will probably offer discount fares, too, when they launch their new routes, says Lee Howard, chief executive officer of Airline Economics Inc.
"Your bargains are going to be in the North Atlantic," he says. "If you want to go to Europe, spring is the time."
Congress hoped that competition among airlines would flourish when they were deregulated in 1978. Yet few new entrants have survived.
Most long-distance travel in this country now is in the hands of three to five large carriers. Mr. Howard notes that an "all-time high" of 93 percent of all US air travelers in January flew on discount fares, but he predicts that the share will drop to 80 percent or less as the industry continues to consolidate.
"There is no competition left in the airline business," insists Ted Harris, chairman of Airline Industry Resources Inc., a consulting firm that advises both business and government. By his calculation, fares have gone up 30 percent over the last year and a half and "the cost of air travel is out of reach for the average American."
Mr. Harris finds it significant that American Airlines coupled its recent discount-fare disclosure with word that, after the April 8 purchase deadline, many American fares would be raised significantly above the pre-discount rate. He says, "It was really a fare-increase announcement."
Christopher Witkowski, director of the Washington-based Aviation Consumer Action Project, agrees. "It appears to signal the other carriers not to worry about following suit [on the discount] because this will be just a brief dip into the trough.... It's paving the way for even higher fares, which will probably more than wipe out any decrease in revenue experienced because of the discounts."
In Mr. Harris's view, even the increase in international-route competition is unlikely to lead to lower fares. Noting that United, American, and Delta are already well established, with a number of other European destinations, he says: "I think these three carriers will exert very significant fare leadership internationally - in terms of forcing higher fares."
Both the US Department of Transportation and Congress are concerned about the increasing consolidation of the airline industry. The House Aviation Subcommittee will hold hearings on international aviation policy this week. Some in Washington now talk about reregulating airlines.
But most discussion centers on finding new ways to increase competition.
Severin Borenstein, an associate professor of economics at the University of California at Davis, who has taken part in some of the Transportation Department discussions, suggests alternatives to re-regulation, which he considers "the worst possible outcome."
Travel agents could be required to list the commission rates they get from various airlines for favoring them in passenger bookings, he says, and raise public awareness about the fact that agents have their own financial interests would help.
Airline dominance of various computer reservation systems and the practice of charging other carriers high booking fees might also be questioned.