International airlines take aim at cheap discount fares
Geneva — In an attempt to trim their crippling losses, the world's airlines have declared war on cheap discount fares.
It's been done, characteristically, after much soul-searching, at the annual general meeting of the International Air Transport Association.
The meeting ended here Nov. 10 with a call to airline chief executives to take personal responsibility to ensure that their companies do not undercut competition by offering cheap fares. The proposal was agreed by 48 airlines, with none opposing.
Now, the question confronting airline executives and association officials is , can they make the agreement work?
The meeting took place against the background of the worst crisis the airline industry has ever had.
Dr. Knut Hammarskjold, the director general of the Air Transport Association, warned the airlines that they may lose $2.3 billion next year. This is at a time when they should be planning to spend $100 billion to replace aging planes and obsolete equipment.
Dr. Hammarskjold identified six key problems:
* The recession. Most of today's air travel is tourism, and a holiday abroad is always the first to be sacrificed in a slump.
* High interest rates. These will add an extra $1.6 billion to the airlines' costs this year.
* The strength of the dollar against European currencies. This means some European airlines are paying up to 10 percent more for their fuel - despite the current oil glut - because oil has to be bought in dollars.
* The lack of foreign exchange in the third world. Some 40 airlines have more than $600 million worth of profits blocked in Africa alone.
* Forged air tickets. This added at least $1 billion to costs this year.
* Discount fares. These are fares lower than those agreed at the association's tariff coordination meetings, which agree on ''bands'' of fares. Some estimates put the loss to the airlines as high as $1.5 billion.
Delegates agreed there is little the airlines can do about the recession or high interest rates.
They are also unable to address directly the problem of overcapacity - the fact that there are too many planes flying for too few passengers - because of antitrust considerations, national pride, and fear of being frozen out permanently from routes. But Ian Ritchie of British Caledonian, the private British airlines, said, ''There sure . . . is something we can do about discount fares.''
For 16 months Mr. Ritchie has chaired a special working group set up by the association, named the ''fair-deal monitoring group.'' Its principal targets have been discount fares and ''bucket shop'' travel agents, who are offered huge commissions by airlines desperate to fill their planes.
Ritchie expressed confidence that the association's resolution will significantly tighten up discount fares. ''This is not a paper tiger, I assure you,'' he told journalists after the meeting.
But others are not so sure. They pointed out that the 48 airlines that voted for the proposal represent less than a half of the association's total membership - indicating, at best, lukewarm support.
Part of this, observers agree, was due to concern that the resolution was too tough - putting too much pressure on the airlines during a time of acute economic crisis, and turning the association into a policeman instead of negotiating club.
At the same time, however, several airlines clearly felt the resolution was not tough enough.
One early version described discount fares as ''malpractice'' and called for ''sanctions'' against infringements. This version was later watered down by the sponsor, the Dutch airline KLM. So tense was the atmosphere that some suggested this was done to allow KLM to continue its policy of ''flexible'' fares - a euphemism for discounts - to attract passengers flying to and from larger West European countries.
After this debate, association officials are now waiting to see whether the airlines will propose new fare bands, which will determine whether or not fares actually rise. The airlines began meeting here this week to discuss the chaotic North Atlantic routes, where, by some estimates, they lost $600 million this year.
All the major international American carriers - who withdrew from the association's tariff meeting in 1978 - will be participating. This has been made possible by a memorandum of agreement between the Reagan administration and 12 West European governments.
Most agree that any dramatic fare increases will raise a storm of protest - that the International Air Transport Association is acting as a protectionist cartel and the airlines are simply cutting their own throats at a time when fewer and fewer people can afford to travel.
They would also, however, increase the pressure on airlines to undercut last week's agreement on discount fares.