Air travelers will have to search harder for bargains as a result of decisions by major airlines to increase discount fares later this month.
United Airlines, the nation's largest airline, will boost all of its discount Super Coach fares and two-thirds of its regular fares by $2 to $70 for tickets purchased on or after Aug. 17. Eastern Air Lines Inc., American Airlines Inc., Republic Airlines Inc., Delta Air Lines Inc. and other carriers now plan to raise some rates to coincide with the United increase. Other carriers, such as Piedmont Airlines, are still mulling over a fare plan.
Since the introduction of airfare discounts in 1977, air travelers and travel agents have fought to snag discount seats, which can be as much as 70 percent cheaper than full-fare. Today, discounts vary greatly, but in general, the further in advance a ticket is bought, the greater the savings.
Airlines have profited from the complex strategy of balancing discount and full-fare customers to fill their planes. According to Airline Economics Inc., 84 percent of airline revenue in the first six months of this year came from tickets sold at discount fare. About half of all revenue comes from business travelers.
"To optimize those profits, we want as many of those seats to be full as possible," said John Hotard, corporate communications manager at American Airlines, which offered the first large discount eight years ago. "We play a very refined game of how many seats to sell at what price." In fact, an airline can wait until 15 minutes before flight time to determine whether seats can be sold at the discount price.
Airline officials say that the new fares are pegged to the distance flown but admit that factors such as competition and popularity of the route contribute to the pricing of a flight. "Fares are really based on a combination of mileage and competition," said Robert Coggin, assistant vice president of marketing development at Delta.
Plans by airlines to increase the price of bargain seats indicate that their popularity has grown so much that the industry is confident that travelers on limited budgets will fight for the discount seats even at slightly higher prices, according to industry analysts.
Although some airlines have added special discount plans, many of which are similar to United's new "Ultra 14" plan -- which allows a traveler to save about 45 percent if the ticket is bought two weeks in advance or two weeks after the reservation is made -- the lowest-price tickets are going up in price more rapidly than full-fare tickets at most airlines. Despite advertisements of low rates, the number of seats available for discounted prices can be very low or even nonexistent on popular routes at peak times because the airline can fill a plane with customers paying the full fare.
The heavy discount fares "were uneconomically low," said Robert Coggin, Delta's assistant vice president of marketing development. Delta plans to add 8 to 11 percent to fares with the largest discounts on Aug. 17, although the company may hold back fare changes until Eastern puts its new fares into effect on Aug. 24, according to Coggin.
American Airlines, which pioneered other large discount fares in January 1984, will raise prices of its cheapest fares by $20 for each round trip. Some fares will drop in markets where American faces stiff competition from other carriers.
Another reason that airlines have increased fares in the discount market is that doing so allows them to avoid raising full rates, which might force more people to look for discount tickets and reduce overall airline revenue, according to analysts. John Pincavage, an analyst with Paine Webber, said that American Airlines examined its bookings and found that there was a strong enough demand for discount fares to allow the company to raise them and still fill seats. "They never would have increased the fare if there wasn't demand," he said, adding that airline industry profits from operations are expected to grow in 1985 to $3 billion, up from between $2.1 billion and $2.2 billion last year.
Helene Becker, an airline analyst with Prudential Bache, said that airlines won't be able to keep raising the discount prices and still fill enough seats. "Ten dollars is not enough to deter people," she said, noting the new increases are fairly low. However, "maybe $30 or $40" will deter a money-conscious traveler, she said. "There will be resistance to repeated price increases," she added.
People Express, the no-frills, discount airline that is responsible for air-fare wars in several cities, is also planning a rate increase for 21 out of 38 cities, which will go into effect on Sept. 5. The airline will raise its fare from National Airport to Newark from $33 to $39 during off-peak hours and from $55 to $59 during peak times, according to Russell Marchetta, a spokesman for the company. Fares to London, Los Angeles and San Francisco will remain the same. Other rate increases will vary from $1 to $15.
"Like any company, your costs go up," said Marchetta, explaining the price increases. Major airlines admit competition from People Express will keep fares low in some cities, and intense competition along some routes, particularly from northeastern cities to southern Florida, will hold down fares for some travelers.