American Airlines raised industry fears of new fare wars yesterday when it announced an "ultimate super saver" program it claims will cut domestic ticket prices by as much as 70 percent.
The program, which other major airlines said they would match, is clearly an attempt by American to attack such low-fare competitors as People Express and Continental Airlines, which offer similar fares on a walk-up basis.
"We're setting fares that will certainly be competitive with the low-fare carriers that are out there today and make us accessible to the fastest growing segment of the traveling public," said American spokesman Lowell Duncan.
However, the "ultimate super saver" is loaded with restrictions, including requirements for 30-day advance purchase, round-trip purchase, a Saturday night stayover and a 25 percent cancellation penalty.
Most of American's competitors said they will meet the challenge. "We're matching it, reluctantly," said Joe Hopkins of United Airlines, the nation's largest carrier. (American is second.)
"The question at this time of year is how much new business you can stimulate and whether you can wind up with more revenue than you would have had. . . . In the past, fare reductions have led to real blood baths."
Delta, Pan American, Trans World and Northwest, all major competitors, said they, too, will match American.
The fear of fare wars -- which seriously damaged the airlines during the recession and contributed to their slow recovery -- drove industry stocks down yesterday. The Dow transportation index was down 10.52, and the five most active stocks on the New York Stock Exchange were AMR Corp. (American's parent), Boeing (which has trouble selling airplanes during fare wars), UAL Inc. (United's parent), TWA and Pan Am. All were down.
American's ultimate super savers include such fares as $129 between Washington or New York and Los Angeles and $99 between Washington or New York and Dallas-Fort Worth. Continental has a $179 off-peak fare between Washington and Los Angeles that requires a plane change. Its cheapest fare to Houston, $119, requires a 14-day advance purchase.
American's fares will be mileage-based, with $39 the cheapest for short flights and $129 the most expensive. It will offer a $69 fare between New York and Chicago, where People currently flies for $59 off-peak and $79 peak. American will continue to offer its regular super saver plus full coach and first class fares.
The American fares will be available for all 92 cities it serves in 33 states beginning Feb. 18.
There is no termination date on the new fare structure, although it is being introduced during the heart of winter, traditionally the worst time of year for the airline business.
The current North Atlantic fare wars, which feature a $338 roundtrip fare between Baltimore-Washington International and London on World Airways, will come to a screeching halt when the weather warms up.
The major unanswered question yesterday was how widely available American's cheap seats will be and whether American's competitors will impose American's restrictions when they match the fares.
American said that it will "control capacity," which means that ultimate super saver fares may not be available on all flights. American's Duncan said, "We've built enough fences around the product that it will generate a great deal of traffic and revenue for us while protecting higher fare classifications we have out there. . . . These fares will be available in every market that we serve, but that does not necessarily mean those seats will be available on every flight."
American is good at controlling capacity because so many of its tickets are sold through its own computer reservation system, which many travel agents use. Jerry Cosley, of TWA, said that American has "an almost infinite capability to manage its capacity against demand. So, as any airline would do in putting forth a gambit, this one is tailored to its strengths."
Another industry expert noted that American was in some ways returning to its origins. American invented the super saver and insisted on a 30-day advance purchase and a 25 percent cancellation penalty. "Those things will only stick if the competitors go along," the expert said. "Based on history, it's hard to believe they will."