NEW YORK — People Express fired another salvo Monday in the airlines' continuing fare war by slashing its prices and those of Frontier Airlines on flights to more than 100 cities.
Major competitors Continental and United airlines quickly announced that they would match the cuts.
At the same time, People Express announced its intention to turn Frontier, which it acquired last fall for $300 million, into a no-frills carrier on which passengers will pay $3 for each piece of baggage they check and 50 cents for a cup of coffee or soft drink.
The new fares go into effect immediately. The redesigning of Frontier's service package will take effect March 15.
Under the new fare structure, which the company said would provide cuts of up to 60%, a People Express passenger will be able to fly between People Express' hub airport at Newark, N.J., and Frontier's hub at Denver for $69, which is $30 less than the present $99 price. There are no restrictions. Included in the fare is the right to free connecting flights on Frontier to nine cities, including Casper, Wyo., and Salt Lake City.
For $79, passengers can fly between Newark and 20 cities, including Phoenix, Las Vegas and Tucson. Reno, Sacramento and Palm Springs can be reached for $89 from Newark with a connection at Denver.
Pressure on Competitors
The move by the two airlines will put pressure to cut fares on a number of airlines that compete with Frontier in the West, including United Airlines and Continental Airlines.
Stephen Schlachter, People Express' managing officer, said at a news conference here Monday that "we intend to be the dominant carrier in this market."
When it acquired Frontier in October, People Express said it would not change Frontier's image. But Schlachter said it now became necessary. "They have struggled since deregulation, yet they have maintained the old airline pricing structure. . . . (United and Continental) have left Frontier without a position in the marketplace. Frontier continues to price and act like a big airline."
Schlachter said the fall of fuel prices is a major reason that the two carriers were able to put the fare cuts into effect. Jet fuel now costs them 50 cents per gallon, he said, down from 80 cents last December. Every decrease of one cent, he added, increases the collective profits of the two airlines by $5 million a year. Some of this, he said, is being passed on to the passenger.
Continental to Match Fares
Continental said it would bring its fares down on all of the routes on which it competes with Frontier. "We will, of course, match the fares," said Bruce Hicks, a spokesman for the Houston-based carrier. "But we are not going to institute the passenger punishment policies that they (People Express and Frontier) have announced. We don't believe passengers should have to suffer in order to get the frills they expect." United said it would match the fares but was still studying them.
Schlachter said he believes that People Express can better afford to make the cuts than any other carrier. He said People Express has a cost per available seat-mile of 5.2 cents, and Frontier's is 8.5 cents. Together, they would have an available seat-mile cost of 6 cents. The comparable figure for American Airlines is more than 7 cents.
At least one of Frontier's unions applauded the changes at the carrier. "I see this as a positive move," said Lorraine Loflin, president of Local 36 of the Assn. of Flight Attendants. "If we don't take some leadership, instead of being reactionary, we'll continue to be left behind United and Continental." But some observers said they believe that People Express is growing too fast and cutting its prices too sharply. "They are overextending--management-wise and debt-wise," said Louis Marckesano, an airline analyst with the Philadelphia brokerage firm of Janney Montgomery Scott.