American Airlines' attempt to bring "common sense" back to airline ticket prices has competing carriers scrambling to reach common ground on a new pricing structure.
In the four weeks since American said it would revamp its coach-class pricing structure, competitors of the Fort Worth, Texas-based airline have either copied its program or invented their own variation.
If American's plan works, travelers will be likely see new "normal" fares for flights booked three weeks in advance, higher fares for reservations placed 14 days before a flight, and a 7-day advance purchase ticket that is 50 percent refundable.
American's approach is twofold. It combines three-tiered pricing and mileage-based fares for regular coach-class tickets requiring travel over a Saturday night.
Along with its spring and summer promotional fares aimed at rejuvenating the travel market, American announced last month that it would resurrect a 30-day advance purchase ticket, which was discontinued last year. The 30-day fares would be priced less than the 14-day and 7-day advance tickets, American said.
The non-refundable 30-day fare was proposed to reward travelers willing to book early. At the same time, it would help the airline manage its "inventory," said Timothy Smith, an American spokesman in Fort Worth.
"Our inventory is a very perishable commodity called a seat," Mr. Smith said. Early reservations give the airline advance indication of its passenger demand for a flight, he said. Bowing to competitive pressures, American has assigned its lowest fares to 21-day advance purchase tickets instead of 30, however.
Going to a mileage-based pricing system makes more sense than the promotional fares that have resulted in cutthroat competition in the airline industry, Mr. Smith said. American hopes to increase the proportion of mileage-based fares so that passengers pay less for shorter flights.
That may be a difficult goal to achieve, according to Samuel Buttrick, an airline analyst with Kidder Peabody & Co. in New York.
"Competition is a function of distance," Mr. Buttrick said. "A mileage-based fare structure runs counter to the underlying competitive structure in the business."
That's because the shorter distances are generally flown to and from airlines' hub cities. On those routes, carriers sometimes experience less competitive pressure because of their dominance in the market.
Long-distance trips to major cities may be serviced by a number of carriers, so price is often the bait used to lure customers, Mr. Buttrick said.
"The longer the route, the more potential competition there is," Mr. Buttrick added.
Mileage-based fares are being analyzed almost market by market, according to some airlines looking into the pricing policy. American has already said that some routes, such as San Francisco to Los Angeles, will not be priced on mileage because of stiff competition in the market.
The ongoing analysis is sparking daily changes in the projected fares as air carriers assess their competitors' moves.
In the deregulated airline industry, wholesale changes in fares are often hard to come by, observers say. But with the demise of Eastern Airlines, airlines are no longer pressured to meet that carrier's dirt-cheap fares.
Consequently, American's move to hold the line on discounting, while raising and restructuring prices, may be right on time, said Con Hitchcock, airlines specialist for the Washington-based industry watchdog Public Citizen.