Airlines rethink fare rules

Call it the first chink in a system that for the past two decades has driven the American flying public crazy - the major airlines' complex pricing structure, which often makes it cheaper to fly from Chicago to Paris for a two-week vacation than from Chicago to Detroit for a two-day business trip.

Several major airlines have announced that, on selected routes, they are doing away with the requirement to stay over a Saturday night. The goal is to jump-start business customers who've been grounded by the lagging economy.

While few experts believe the change will last once the economy rebounds, some consumer advocates see it as a hopeful sign of much larger changes on the horizon.

A big drop in profits is what forced United, American, and others to cancel the Saturday-night stay, mostly in and out of Chicago. Consumer advocates note that it's the first time the airlines have eased the intricate and restrictive pricing structure that grew up after the industry was deregulated in 1978.

Indeed, some members of Congress would like to see many of the restrictions - from the rules of advance-ticket purchasing to the prohibition against using only part of a ticket - done away with completely.

This fall, Congress is expected to hold hearings on the airlines' pricing system to find a way to make it fairer to consumers.

"The whole idea in a deregulated environment is that ticket prices are set by the airlines to maximize profits, not by the government to be fair to consumers," says Edward Hasbrouck, author of "The Practical Nomad" travel books. "That's one reason deregulation has not created a level playing field, and why there's a crying need for a degree of reregulation, at least where there is no real competition."

Unintended consequences?

But other consumer advocates, as well as the airlines themselves, are opposed to any changes in the pricing system. While they acknowledge that it might be confusing for consumers, they say the complexity of the system allows larger, high-cost carriers like United and American to compete against the low-cost, no-frills airlines nipping at their heels. Tampering with the system, they fear, could bring about unintended consequences like higher fares and less service to smaller cities.

"While we understand and empathize with passengers who are paying relatively high fares in some markets, we believe the way to solve that problem is to create more competition in those markets," says Steve Martin of the Congress's General Accounting Office (GAO), which just completed a comprehensive analysis of the airline's pricing structure.

To understand how and why the complex pricing system tends to work to the airlines' advantage, one must take a step back. Before 1978, airlines generally flew directly from one point to another, and the Civil Aeronautics Board set fares. Generally, the farther the distance and longer the flight, the more one paid.

But once the government controls were lifted, the airlines needed to find a way to serve as many people as possible, as cheaply as possible. So they developed what's called the "hub and spoke" system. That way, even if, say, US Airways doesn't fly directly from Boston to Cleveland, it could get you there via a layover in another city.

To cover fixed costs such as labor and fuel, airlines charge lower prices to passengers who book early, while the last-minute buyers, usually businesspeople, pay a premium.

In another bid to increase profits, the airlines instituted the Saturday-night stay requirement. The idea is to charge an even higher premium to business travelers who want to get home for dinner with the kids on Friday night.

For instance, a 14-day advance purchase of a round-trip ticket between Dallas-Ft. Worth and Los Angeles is $1,490 without a Saturday-night stay, but only $290 if you're willing to go home on Sunday morning.

The intricacies of the system have led travelers to come up with ways around the restrictions. The most common are the so-called "back-to-back" and "hidden cities" opportunities. For instance, it is cheaper to buy two round-trip tickets at $290 each, one originating in Dallas the day you want to leave, the other in Los Angeles the day you want to return. The traveler would save $910.

Technically, that's fraud

The only problem is that if you buy a round-trip ticket intending to use only one portion, that amounts to fraud. Passengers enter into a legally enforceable "contract of carriage" when they buy a ticket, which says they will travel where the ticket says and use all portions of it in order.

While some members of Congress have proposed legislation that would do away with the prohibition against "back-to-back" pricing and other such methods, many industry experts oppose the move. They contend that as frustrating and complex as the system is, it has brought about overall lower prices and better service than 20 years ago.

"Any tampering of the system of pricing runs the risk of creating much higher fares for everybody," says David Stempler of the Air Travelers Association in Washington.

But other aviation experts disagree about the impact on consumers. They maintain that if the airlines did raise prices dramatically, it would be only for the short term, and it would in the long run spur greater competition, more efficiency in some of the bigger airlines, and better prices overall.

"The egregious nature of those fares would catch the public's attention and entrepreneurs' attention sufficiently to do something about it," says Alan Bender, at Embry-Riddle Aeronautical University at Daytona Beach, Fla. "It's perfectly understandable why the airlines keep their complex pricing with restrictions. It's one of the only ways inefficient, high-cost airlines are able to keep operating in the deregulated environment."

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