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Travel and You

A New Trend of Rising Air Fares

August 03, 1986|TONI TAYLOR | Taylor, an authority on the travel industry, lives in Los Angeles.

Since about the start of this decade, the travel industry, especially that part of it concerned with air transportation, has been in what might charitably be called a constant state of flux.

Nothing has been certain in an industry made crazy by deregulation, competition, consumerism, terrorism and a host of other extraneous factors. And things are by no means settled now; there still are many imponderables.

In such an environment, prognosticators tend to live short lives. Forecasting is a thankless task at the best of times, it is all but impossible in a world in which the rules, and the players, keep changing.

Another Prediction

But here is one prediction that many in the industry are now prepared to make . . . air fares can be expected to inch upwards, or maybe even rise by leaps and bounds, in the months ahead.

That sound you hear is a sigh of relief from the nation's airline marketers at the very real prospect of a relaxation of pressure on the bottom line caused by the fare wars in which they have been locked.

For one thing, most of the airlines are fed up with the direction they have allowed their marketing to take. Results have not been good for the industry overall.

Losses Noted

Many carriers have reported substantial losses for the first half of this year, and they're wondering why.

Fares have never been lower. And low fares are meant to generate new, incremental business, to encourage people to fly who might not otherwise do so.

It hasn't worked out that way.

From the biggest to the smallest, airlines are reporting, if not decreases, no significant increases in traffic volume January through June. Obviously, discounts are not doing the job for which they were designed.

Now the airline operators are starting to take a long, hard look at the cause and effect relationship of cut-rate seats on traffic trends. And what they are finding doesn't thrill them at all.

So they are, clearly, of a mind to jack their prices up again to more profit-making levels. But how do you do that when there are so many competitors around anxious to keep them down?

The truth is that even the competitors are finding it tough to make a buck at the prices they're charging.

Closely Watched Case

Perhaps the most telling story in the airline business right now is the unfolding saga of People Express. Once the darling of the financial community and of Wall Street, People Express, the granddaddy of domestic no-frills carriers, has fallen on hard times.

Recently, it was forced to sell its Frontier Airlines unit to United and even took the unusual step of asking for $50 million up front, before government approval of the sale, to ease its cash-flow problem. The company is retrenching at its Newark, N.J., hub and a week or so ago announced that it was . . . guess what . . . raising its fares.

Ironically, People Express is a victim of the very fare wars that it, in some places single-handedly, helped to generate.

Its established competitors, United and Continental, for two, simply refused to roll over and allow it to corner the discount fare market in Denver, Frontier's hub, and, by increasing capacity and staying at Frontier fare levels, reduced the carrier to penury.

People Express, in the words of a prominent San Francisco airline analyst, was "beaten into submission" in Denver.

United and Continental, as well as American, Eastern and other companies that compete directly with People Express throughout the country, hope that the airline will go along with the much-needed industry movement to higher fares.

Downward Pressure

People Express exerted the same kind of downward pressure on the domestic air transportation product that Laker Airways exerted in transatlantic service a few years ago. Laker, of course, no longer exists, a fact that surely hasn't escaped People Express' attention.

It's not accurate to lay all of the fare wars blame at People Express' door, of course. There have been others--still are, for that matter--who have shown an inclination to go with what many regarded as suicidal prices, forcing others to go along with them.

But People Express was certainly the major factor. And any change of heart by it must have an impact on the industry as a whole.

So you may have to pay a little more for your airline seat in the future. But, chances are, you'll be sitting in an airplane belonging to a company that's a little healthier financially than it was in the first half of this year.

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