Financially struggling Pan American World Airways touched off a new price war in the skies yesterday by slashing its unrestricted one-way fare from New York to Los Angeles or San Francisco to $199 from $322 and by reducing other domestic fares as much as 53 percent.
The fares, which are effective April 15, upset a two-week-old move in the airline industry toward a new fare structure based on flight mileage.
Trans World Airlines immediately matched Pan Am's new coast-to-coast fares, as well as the airline's new $139 New York-to-Florida fares. Both United and American airlines said they would also charge $199 on New York-California flights, but with a three-day advance purchase requirement. Other airlines said they are studying Pan Am's announcement.
American pioneered the concept of air fares tied to flight mileage, setting a $423 fare for a one-way flight between New York and the West Coast on March 14 to go into effect over the next two weeks. Other airlines imitated American's plan.
American said yesterday it was holding the line on its other mileage-based fares while it studies the Pan Am announcement. Other airlines also were attempting to hold on to the rest of the mileage-fare structure.
"The sad part about it, I think, is that everybody had some great expectations about this new mileage-fare plan to restore some order and conformity to the fare situation," said a spokesman for TWA. "Unfortunately, it takes something like this to destroy this fragile fare structure. But I guess they felt they had to do it."
A spokesman for Pan Am, which has been in precarious financial shape for some time, said the airline decided to buck the industry trend because only 30 percent of its flights are domestic and most feed into the carrier's international routes. He said the airline was putting the new fares--called "fill-up" fares--into effect on virtually all of its domestic routes to add passengers on those legs of its international routes.
"If you're flying empty seats that aren't being filled by passengers traveling onward, why not fill them up?" a Pan Am spokesman said.
Among the new one-way fares announced by Pan Am were a $99 fare between Washington and Florida cities; a New York-Hartford fare of $39, a 17 percent cut; a New York-Minneapolis rate of $139, a 28 percent reduction; and a New Orleans-San Francisco fare of $139, down 53 percent from the previous level.
Fares are unrestricted and scheduled to be in effect until June 15.
The mileage-fare concept bases fares on a formula that multiplies the number of miles covered by a per-mile rate. Under American's plan, fares on flights over 2,500 miles are computed at a rate of 15 cents a mile; the multiplier for flights below 250 miles is 53 cents.
American said it hoped its plan would eliminate inequities in fares on routes of similar lengths. The airline said the new plan would lower standard coach fares on more than 700 of its routes while raising fares on more than 500 others. In the typically imitative price pattern of the airline industry, many other large carriers quickly adopted the American plan for their fares.
Some consumer groups protested that the new fare structure would reduce competition by allowing airlines to lock themselves into fares that disregard the cost variations of flying different airline routes and by allowing competing airlines to reckon each others' fare changes quickly.
Critics argued that the per-mile fares would undo many of the discounts won when air fares were deregulated in 1978.