Airfare Wars: Consumers Win

February 23, 1991|By Blair S. Walker

Jan Zee was about to fly round-trip from Baltimore to Santa Barbara, Calif., at the ultimate discount price -- free of charge.

Her ticket was issued at Baltimore-Washington International Airport by AmericaWest Airlines, a leading player of the fare-war game. Ms. Zee had to log 20,000 miles with the airline to get her Santa Barbara freebie.

"I'll be doing 20,000 miles in another three months, and I'll get another free flight," said Ms. Zee, 56, who was traveling on personal business. "I'm flying on AmericaWest because they had the best airfares out of Baltimore to the West Coast, at the time when I got involved. Once I got involved and starting adding up miles, it sort of doesn't make sense to quit. So I'm cashing in on my first free flight, and I'm real happy about it."

Discounted airline fares have been a runaway hit with consumers. Last year, 91.4 percent of passengers flying domestic routes -- about 422 million people -- did so taking advantage of airline discounts and promotions, according to the Air Transport Association. That compares with about 50 percent in 1978, the year the Carter administration deregulated the airline industry, said

David Donovan, an ATA spokesman.

Low ticket prices have eased the pain of a devastating 1990 during which domestic airlines collectively lost a record $2 billion. Most of that red ink was posted in 1990's last quarter and was attributed to the recession, the Persian Gulf war and high fuel prices. Those factors spawned an environment that contributed to Eastern Airline's demise.

Discounted airfares have been used extensively as a financial salve,but some industry observers warn that they have limitations.

"The recent financial difficulties of the industry have produced some almost desperate marketing strategies by some carriers and some incredible airfare bargains," Transportation Secretary Samuel K. Skinner told a congressional subcommittee earlier this week .

"But we know that unrealistically low prices are a bad bargain in the long run. Airlines must recover their costs or eventually go out of business."

In a hostile fiscal environment where Eastern's demise, and bankruptcy filings by Pan Am and Continental Airlines Holdings, dramatically illustrate that only the strong will survive, Mr. Skinner said, fares eventually have to rise.

"We should expect that as the industry consolidates further, which is likely, some of the lowest fares will disappear," Mr. Skinner said in a statement released by his office. He observed that "in the long run, fares must cover airline costs."

John Meyer, a professor of economics at Harvard University, agrees.

"The discount fares clearly can be a help in terms of increase immediate cash flow -- it's been the need for cash flow on the part of some of the financially more precarious carriers that's been driving a lot of the discounting," Mr. Meyer said.

"It obviously can be carried too far. Across-the-board discounting cannot be sustained in the long run. To be honest about it, airlines will have to drop discount fares. On the one hand, you want travelers to enjoy inexpensive airfares. On the other hand, airlines need a reasonable rate of return on their capital. It's a very delicate balance."

Mr. Meyer said the events of the next few months, including the possible resolution of the Middle East conflict, will play a critical role in determining who the long-term survivors will be among major U.S. airlines.

Some experts warn of a future in which three carriers, United, Delta and American, could dominate.

In the meantime, passengers such as David el Berman, 33 -- who was traveling round-trip from Baltimore to Fort Lauderdale, Fla., on USAir for $281 -- will continue to journey through the skies at the lowest possible price. He had to purchase his discounted ticket several weeks in advance, and it contained several restrictions, including a ban on refunds.

Mr. el Berman, 33, was traveling on business and said he would have flown even at the $648 price USAir charges those who buy a Baltimore-Fort Lauderdale round-trip ticket on the day of departure.

"One way or the other, I would have flown," he said. "But it saved to get the discount fare."

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