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Air Fares May Go Up--Except in California : Airlines: Carriers hope to extend recent financial comeback. Prices on some routes have risen already.

November 07, 1994|From Times Staff and Wire Reports

The recent relentless wave of air fare cuts may be starting to ebb--except in California.

After a year of offering steep discounts to attract passengers, the nation's major airlines are preparing to raise ticket prices on selected routes in an effort to extend the industry's recent financial comeback. Some fares have already been raised.

In California and the West, however, analysts expect the fare wars to continue, as no-frills leader Southwest Airlines does battle with United Airlines' recently inaugurated shuttle service.

Experts said that Dallas-based Southwest is likely to raise fares in its core Texas markets and other regions to subsidize cheap prices on the West Coast. Southwest currently offers one-way fares as low as $39 for travel anywhere it flies within California, with a 21-day advance ticket purchase.

Southwest has said it will likely raise prices on some routes next year. Continental and other airlines also are expected to hike fares on certain heavily traveled routes where the change is unlikely to discourage passengers from traveling, industry experts said.

They also said travelers will still be able to find bargains.

"The cities with the lowest fares have probably hit rock bottom, except for some promotional fares," said Tom Parsons, editor of Best Fares, a discount-travel magazine. "There will still be special fares that pop up on occasion, but the everyday low fares will see a minimal increase."

Higher fares will be a welcome change for the industry. After losing $10 billion in the early 1990s, the airlines are again showing profit gains thanks to aggressive cost-cutting. But they're also complaining that continued low ticket prices are keeping a lid on their sales growth.

Continental in effect proposed a price increase late Thursday. It said it plans to scale back its much touted Continental Lite service at least 20%, in order to help the operation turn a profit.

Houston-based Continental basically split itself in half a year ago by starting the low-price Lite service, which focuses on East Coast markets. The service has struggled to break even, and new Continental President Gordon Bethune said fares on some of the remaining Lite routes might be raised to generate extra revenue.

He said Continental Lite already had raised fares modestly in some Florida markets in the last week.

Raising fares on some of routes may be the only way Continental Lite can make those flights profitable, since costs already are low and traffic is heavy, analysts said.

"I think (Continental Lite) has a lot of adjusting to do," said Michael Derchin, an analyst at NatWest Securities in New York. "I think there will be a lot of pressure at Continental to raise air fares."

Although the low prices have generated traffic, analysts said it's nearly impossible to earn a profit on the cheap flights no matter how much the airlines cut their costs.

Price increases "will be a positive," said Ray Neidl, an analyst at the securities firm Furman Selz Inc. in New York. He said some of the current low fares are "ridiculous."

Delta Air Lines spokesman Bill Berry agreed: "If there are some upward adjustments, it will simply reflect what the cost of providing the service is. If the bottom level of fares can come up that's good news, because they are rock bottom."

Nonetheless, analysts said the airlines won't want to jeopardize their traffic gains by raising fares too much.

"They want to get prices up to an economic level and only lose a marginal amount of traffic," Neidl said.

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