Too early to tell if proposed airline-fare system will stick
Boston — It's time for airplane travelers to ''divorce themselves from the $99 mentality,'' says Lowell Duncan, a vice-president at American Airlines. ''That is not a normal coach fare (for a cross-country flight).''
And if consumers don't do it now, they may have to in April, when many of the major airlines will be starting a new fare structure and trying to move away from massive discounts. The feeling in the industry is that something has to be done about the airlines' record losses, and a simplified fare structure will help.
Since American announced plans two weeks ago to price its fares on a per-mile basis and reduce the number of passenger classes to four, five other carriers have announced that they will make similar changes. Delta, United, TWA, Northwest, and Continental fares will mirror the structure established by American, though there will be some variations on the theme. Some airlines are still considering a switch, while others have decided not to go along.
''At the moment, the indications are that some kind of fare structure is going to be adopted,'' says Hans Plickert, an airline analyst with E.F. Hutton & Co. ''But the real proof won't come for a couple of months.'' If a lot of other airlines undercut the new fares - as Pan American is expected to do - and if traffic drops off significantly because of the new fares, these six airlines ''may fall back to heavy discounting,'' Mr. Plickert says. ''If the change sticks,'' he adds, ''it could be significant (in terms of) profits.''
''I think the majority of airlines will go along with it,'' says Alfred Norling, an airline analyst at Kidder, Peabody & Co. ''Traffic demand is high . . . and every airline now sees an economic recovery getting closer. They equate that with a higher demand for regular fares.''
It's impossible to generalize about the impact of the new structure on consumers. In the case of American, the fare changes will result in 720 lower fares and 543 higher fares. The average price increase will be $31, while the average decrease will be $26.
American has also simplified its classes of fares to first class; coach; a new off-peak-time economy coach, priced at 25 percent below regular coach; and supersaver, which is 50 percent below coach. To get a supersaver you have to reserve a round-trip ticket seven days in advance and limit your trip to no more than 14 days. This fare structure eliminates thousands of unneeded fares, according to American.
American has broken its pricing brackets into 11 mileage categories. The pricing starts at 53 cents a mile for trips under 250 miles and ends up at 15 cents a mile for trips over 2,500 miles. Shorter trips cost more per mile, because they are more expensive to operate than longer trips, American's Mr. Duncan says.
At Northwest Airlines, spokesman Matt Gonring says the real impact of the change is in the fewer number of fare categories, not in the mileage-oriented pricing structure. By having only four basic types of fares, consumers won't have to wade through dozens of fares and fare rules. ''It's going to be less complex and easier for customers to compare Northwest with other carriers,'' says the Northwest spokesman.
''In regard to mileage, the impact remains to be seen,'' Mr. Gonring adds. The airlines will continue to be competitive and match prices, and this may pull them off a mileage-based pricing structure on many routes, he says. For instance , Continental announced a supersaver fare for a limited amount of time that is below the supersavers of the new structure. Both TWA and American are matching it.
Though competition will continue, discounts won't be as drastic as they are now, airline executives say. In the long run, the new system will ''restore an adequate yield on those routes where yield has been destroyed,'' says Mr. Duncan.
The mileage and fare categories ''help us get a level of stability,'' says Sally McElwreath, a Trans World Airlines spokeswoman. ''All the airlines need that at this point, because all the airlines have suffered such financial difficulties.'' As far as Ms. McElwreath knows, the TWA switch is for real. ''We have spent a lot of time getting our computers changed over,'' she says. ''We're committed.''
Because the mileage scale means that short-haul flights are more expensive, airlines that specialize in shorter flights are taking a wait-and-see attitude before they go along with the new structure. ''We're waiting to see what the rates have done to the short routes (of the airlines that have made the switch), '' says Richard Shuyler, a vice-president of New York Air, which flies mostly in the Northeast corridor.
United is keeping the fare on its Los Angeles-San Francisco flight at $49. Under the new structure, it would jump to $84. ''In the short-haul markets, American's formula makes the fares so high no one would go for it,'' says Charles Novak, a United spokesman. Because of that, the airline is applying the American mileage formula to between 60 and 70 percent of its markets.
What about the airlines that make discounting a strategy? At Southwest Airlines, which competes with American, officials are still holding to their philosophy of being a low-cost transportation airline, though they did raise prices 10 percent at the beginning of the year. As of this writing, no discount airlines have followed in American's footsteps.
''Discounters may try to move up their fares a little, but they will still keep them below (the major airlines),'' says Thomas Canning, an analyst with Standard & Poors'.
Though the new structure could be broken up by stiff competition or a drop in demand, most analysts say the participating airlines will fight hard to keep the structure in one piece. ''There's going to be an attempt to really make it stick ,'' Mr. Canning says. Fare structure for American Airlines (Cost per mile for normal coach fares) Miles Cents per mile Over 2,500 .15 2,251-2,500 .16 2,001-2,250 .17 1,751-2,000 .19 1,501-1,750 .20 1,251-1,500 .21 1,001-1,250 .23 751-1,000 .25 501-750 .29 251-500 .34 Under 250 .53 Source: American Airlines Inc.