If gulf war starts, fares could soar


January 07, 1991|By Tom Belden | Tom Belden,Knight-Ridder News Service

As 1991 begins, the travel business is fraught with uncertainty and potential trouble.

Not only is the economy expected to stay in its slump for at least six more months, but a Mideast war also could send oil prices soaring, igniting another round of increases for gasoline and jet fuel.

Besides making autos more expensive to operate, increases in the price of jet fuel would mean higher airfares and further consolidation of the airline industry, which in turn would diminish competition, industry officials and analysts say.

The airlines' financial situation may have its biggest effect on the international market. Pan American World Airways, a transcontinental carrier and one of America's oldest but weakest airlines, could be sold or dismantled in coming months. Pan Am has agreed to sell its London routes to United Airlines, while Trans World Airlines, which wants to acquire Pan Am, is selling its London routes to American Airlines.

Last week, one of the strongest U.S. carriers, Delta Air Lines, said the London-route purchases could give American and United such large shares of the U.S.-to-Europe market that the U.S. Department of Transportation should hold hearings on the acquisitions.

"Never before has such an enormous restructuring of the international air travel market . . . been proposed," Delta Chairman Ronald W. Allen said in a statement. "If these transactions are approved, the Department of Transportation will have created the potential of a virtual U.S.-flag duopoly across the Atlantic."

In the meantime, further oil-price increases could exacerbate the financial troubles of an airline industry that is expected to have lost $1.5 billion in the fourth quarter, analysts say.

"The strain of the worldwide recession and the explosive increase in the price of jet fuel have driven the industry to the point of near-paralysis," said Albert A. DeLauro, vice president and head of the

transportation practice at the Cresap division of the Towers Perrin consulting firm.

Since the Iraqi invasion of Kuwait Aug. 2, business travelers have been socked by some of the sharpest fare increases ever.

Although overall ticket prices are up about 18 percent since summer, that's an average and doesn't reflect the full-coach fares that many business travelers, who travel on short notice, must pay.

Nationwide, American Express Co.'s airfare management unit, calculates that full-coach fares shot up 27 percent between Dec. 1, 1989, and Dec. 1, 1990. The lowest fares available to a business traveler were up 24 percent, and the lowest coach fares were up 22 percent, it said.

In addition, this fall some airlines quit offering discounts, which had ranged from 15 percent to 40 percent off full-coach prices. To get the discounts, a passenger usually has to buy a ticket three to seven days in advance.

In some markets, the absence of discounts for business travelers this fall was striking.

Between Philadelphia and Atlanta, for example, the one-way full-coach fare went up 28 percent, from $290 to $371, between Dec. 1, 1989, and Dec. 1, 1990, American Express found. The typical business fare to Atlanta was up 90 percent, from $139 one way to $264.

Travel One Corp., a regional agency that operates in the Philadelphia and Baltimore areas, said that between Baltimore-Washington International Airport and Los Angeles, the round-trip full-coach fare went from $1,100 in November 1989 to as high as $1,408 a year later. The lowest coach fare was up only slightly, from $378 to $399, the agency found. A discount coach ticket that a business traveler normally might use had soared from $540 to $1,168.

As 1990 drew to a close, airlines were reinstituting some of the discounted business fares, but with the same hitch that now applies to the cheap tickets sought by leisure travelers: There's a deadline, in this case, Feb. 15, to purchase the tickets.

Higher fares are making large and small organizations take a hard look at their travel costs, agents and analysts said.

"Our customers have cut back at least 10 percent on the number of transactions," said Charles Roumas, Travel One's vice president for marketing.

For the slow travel periods of January and early February, the industry turmoil will mean a range of good deals for vacationers.

"Airfares will be highly volatile in early 1991," editor Ed Perkins predicted in the January issue of Consumer Reports Travel Letter. "Overall, ticket prices will keep going up, but empty seats will force airlines into short-term promotions."

An example is Eastern Airlines' current sale of seats on weekends for $79 one way to Florida and $149 one way to cities in the West.

One other silver lining in an otherwise cloudy picture is that all the major carriers have matched or even bettered a Delta offer aimed at frequent fliers.

As in a deal airlines offered last spring, a frequent-flier program member can earn a free round-trip coach ticket by flying three round trips or eight one-way flight segments. A round-trip flight with a connection through a hub in each direction involves four segments, so a passenger needs only two such round trips to earn a free ticket.

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