The Civil Aeronautics Board yesterday tentatively decided to propose new rules to give airlines more freedom than ever to lower fares without government interference.
Under the proposal, airlines could drop fares by up to 50 per cent below a maximum ceiling, which would be set at existing normal coach levels. Within the 50 percent zone, airlines could be assured that their discount fare proposals would not be turned down by the board on the grounds that they might be "unreasonable," nor would the airlines have to submit to the board the extensive amount of economic data now required to justify their fare proposals.
The board would only use its power to turn down proposed fares within the 50 percent zone in what was described by board officials yesterday as unusual or extraordinary circumstances: when the board was convinced that the proposed fares were very probably predatory, and therefore unlawful if investigated, and would cause immediate and irreparable harm to competition if they were allowed to go into effect.
The board could still investigate the fares while they were in effect, and could disapprove them at the end of the investigation, but it would allow them to be in effect during the investigation. In the past, the board suspended proposed fares because they might be "unreasonable" or "unjust" and didn't permit them to go into effect. The carrier then would generally withdraw its fare idea.
The proposal is specifically designed to encourage airlines to engage in coach-fare price competition on individual routes.
The board's proposal specifically abandons many of the principles upon which it has approved and disapproved fares in the past decade.
The board would no longer require that fare cuts by system-wide. In the past, changes in coach fares in individual markets were not possible because the CAB insisted identical fares be charged for all routes of equal distance, regardless of other factors such as numbers of passengers, air traffic and airport costs.
The board would no longer insist that first-class fares be set a certain percentage higher than regular coach fares, giving the carriers more freedom to experiment with different levels of quality of service and price.
The board would not restrict discount fares to an 18-month life as it has in the past and would not require the carrier that wants to lower the fare to prove it will be profitable and would generate more passengers than it would divert from its regular-paying customers or the regular-paying customers of its competitors.
In general, Airlines would have a significant amount of new freedom with which to experiment under the new rules.
The board has been abandoning its rate-making principles more and more in the past year in an ad hoc manner as it has approved discount fare proposals of the airlines for some routes.
Implicit in the board's proposal is acceptance of the conclusions of numerous studies that the board's fare policies of the past have kept normal coach fares significantly higher than they might have been had airlines been given more flexibility to lower their fares in selective markets.
The proposal the board considered at yesterday's meeting originally contained only the flexibility for fares to go down on the grounds that flexinility to raise fares would not protect consumers flying the routes where there was insufficient competition to act as a check on unwarranted fare increases.
Board officials yesterday noted, for instance, that where local service airlines have no competition, they have raised fares to 130 per cent of the coach fares as allowed by the board, but have not raised them to the maximum where they have competition.
But at yesterday's meeting, board members decided to seek public comment on whether they should allow the airlines similar flexibility to raise fares up to 5 percent above the ceiling without suspension, or more than 5 percent with greater justification.
The board yesterday unanimously voted to adopt the proposal for rule-making pending changes it made at yesterday's meeting.