Braniff International, which expanded too much and too fast under deregulation and then contracted sharply to stay alive, is beginning to think now about expanding again--but cautiously.

"Hindsight says we dropped out of some cities we shouldn't have," Braniff Chairman John J. Casey said in an interview here.

The Dallas-based airline recently began new service between Houston and New York's LaGuardia Airport, and next month will start flights between Dallas and San Francisco, he said. Other cities already served may be linked by new routes early next year as Braniff begins to look for productivity gains to build revenues, having already attacked its costs, he said. "It's hard to save yourself into productivity," Casey said, echoing C. Edward Acker, who has stated the same philosophy at Pan American World Airways.

Braniff has reduced its costs significantly by laying off 1,500 workers in the last 15 months, by getting employes to go along with a three-year, 10 percent cut in their scheduled salaries and changes to improve productivity, and by selling surplus equipment and aircraft, he said.

Soon after Howard Putnam left the successful Southwest Airlines to join Braniff as president, Braniff announced Texas Class, a new streamlined fare structure that reduced the number of different fares on its entire domestic route system from 582 to just 15, all of them significantly lower than existing coach fares. The unrestricted-fare plan, instituted Nov. 24, was accompanied by the conversion of its 727 aircraft to a single class of service that appears to have more comforts than regular coach. First-class sections, which were carrying an average of only four passengers a flight, have been eliminated on domestic flights.

"We think Texas Class is our niche," Casey said. "It's starting to work; the passenger loads are building." By announcing the plan in early November, he said the airline was able to carry 21 percent more passengers over the five-day Thanksgiving holiday than it had expected. Bookings for the Christmas period are 30 percent higher than they were before the new fare plan was announced, he added.

Although the new fares produce a lower yield--the amount per mile that the airline receives from the passenger--the airline will collect more revenues if the fares begin to attract more passengers than they were carrying before, Casey said. Although he declined to forecast a time when the airline will begin making a profit, he said officials are estimating conservatively that Braniff will fill approximately 61 percent of its seats next year with a break-even load factor of 60.3 percent.

Casey said Texas Class couldn't have been instituted without the concessions made by its labor groups, especially pilots who signed a contract agreeing, among other things, to a 16 percent improvement in productivity over the next two years. The pilots' agreement allows Braniff to increase flying time and utilization of its aircraft significantly without adding any pilots. "We're working at reducing costs that will make today's Texas Class a basis for making profits," he said.

The airline's task is not simple; its new strategy requires more passengers at a time when the economic recession has caused a decline in airline traffic generally. Braniff also has a large debt burden, with close to $688 million in private debt and $90 million in public debt. Earlier this year, the lenders agreed not to collect any principal or interest until Feb. 1. Casey said Braniff has given its 39 lenders its operating plan and forecasts for next year and is confident they will be able to work out a debt restructuring plan.

Except for eight DC8 aircraft being operated to South American and a handful of 747 aircraft for its Hawaiian and London services, Braniff will have standardized its fleet by the spring with 62 Boeing 727-200 aircraft, whose average age is only four years. It still has four 747s and one older-model 727 for sale. It recently sold nine older 727s to United Parcel Service for $28 million, which it used to pay off some debt.

Braniff also has made arrangements with an industrial realty firm in Dallas to try to find a tenant for its two-year-old, 600,000-square-foot world headquarters building complex on the grounds of the Dallas/Fort Worth Airport. "We could put everybody we've got now in less than 150,000 square feet," Casey said. "We're looking to get down into a lean, hungry posture."