Exodus 1971: New Bargains in the Sky
NO one could blame the Europeans for suspecting that it might be a plot concocted by American parents. This summer as never before, their parks and piazzas, their hostels and highways are overflowing with a record-high number of blue-jeaned invaders. More than 800,000 young Americans are descending on Europe with the same ease and dispatch with which an older generation took on a trip across the state line. In the process, they are turning the travel industry upside down and creating a stir wherever they go.
Londoners are complaining about "pollution by package tour." More than the usual thousands of Continental Europeans are making plans to flee their own cities this summer to avoid the youthful crush. Elderly strollers in Munich's English Gardens glower at barefoot Brooklyn musicians standing on their heads with feet intertwined or sitting yoga-style, with begging bowls in outstretched hands. The Greek Orthodox Church in Athens has adopted a new prayer entitled "For Those Endangered by the Touristic Wave." The words: "Lord Jesus Christ, Son of God, have mercy on the cities, the islands and the villages of our Orthodox Fatherland, as well as the holy monasteries, which are scourged by the worldly touristic wave. Grace us with a solution to this dramatic problem and protect our brethren, who are sorely tried by the modernistic spirit of these contemporary Western invaders."
The big new incitement to youthful wanderlust this year is the greatest price-cutting war in airline history. It has created youth fares so enticing that the youngsters can hardly afford to stay home. Ever since Belgium's Sabena, whose transatlantic 747s had been running only 11% full, offered a $220 round trip to Belgium for almost anyone under 30, other lines have rushed to meet or beat that bargain. A youth-fare passenger on Sabena can fly only to and from Brussels, but on some other lines he can now mix and match. Pan Am. for example, allows a person of 25 or less to fly to one European city and return from another. Irish-Aer Lingus offers the widest choice of all --four different cities. The deal: fly into one Continental city, return from another, and stop over in Dublin or Shannon both coming and going.
Economic Consequences
TWA has hitched a welcome wagon of giveaways to its flights: each youth-fare passenger gets a book of coupons good for 10% to 50% discounts in restaurants and discotheques. Alitalia announced the best cost-per-mile bargain: a $199 round trip between New York and Rome. Icelandic Airlines, dubbed the "hiphop airline" by the hairy hordes who prefer it. rolled out the cheapest European youth fare: a $185 round trip between Aug. 1 and Sept. 10. and $165 the rest of the year.
As a result of the price cuts, 1971 will be one of the biggest years ever for going places. All together, more than 3,500,000 Americans and Canadians will cross the Atlantic this year. Because of the recession, the recalcitrance of the stock market and the horse-and-buggy pace of economic recovery, even middle-aged tourists will be looking for bargains rather than luxury. The rush of cut-rate travelers to Europe is having many economic consequences--and not just in Europe itself. Among them:
A BOON FOR OWNERS OF LOW-AND MEDIUM-PRICE EUROPEAN HOTELS. Construction of accommodations in Europe is becoming such a profitable investment that U.S. money built $30 million worth of hotels last year in Amsterdam alone. Hotel rooms in most price categories are very tight in Athens, Brussels, Budapest, Copenhagen, Dubrovnik, Geneva, Helsinki, London, Moscow, Prague, Salzburg, Stockholm, Vienna, Warsaw and Zurich. In almost every other top city, they are just plain tight. Prices have risen about 10% since last year. A double room with bath in a good hotel ranges from a low of $7 in Lisbon and $10 in Munich to a top of $48 in Rome, $50 in London and $65 in Paris. A WINDFALL FOR VENDORS OF THE GOODS AND SERVICES THAT ECONOMY-CLASS TOURISTS WANT. Among the beneficiaries: European small-car-and bicycle-rental companies, inexpensive restaurants, even greengrocers, and North American sporting-goods and Army-Navy stores. Today's young travelers load up with sleeping bags, shelter halves and Swiss army knives. U.S. knapsack sales so far this year are way up. A SERIOUS PROBLEM FOR THE TOURIST TRADE IN THE CARIBBEAN, HAWAII AND THE U.S. SOUTH. Some resorts in those areas have already been hurting for more than a year, partly because of competition from charter flights and low group fares to Europe. Round-trip economy fare from New York to Miami is $166; from Chicago to Jamaica, $286; Chicago to Hawaii, $346. Asks one Eastern Air Lines vice president: "How can we sell a kid on going to Miami when he can go to London for just a few bucks more?" AN EVEN BIGGER DRAIN ON THE U.S. "BALANCE OF TOURISM." Since 1960, Americans have spent $19 billion more abroad than foreign visitors have spent in the U.S., and this year's deficit is expected to top $2.5 billion. By contrast, Italy's tourism surplus usually helps put its overall balance of payments in the black. Tourism is one of the biggest industries of Spain, Portugal and Greece, and this year it will be even richer.
By far the greatest impact of the budget-travel upheaval will hit the international airlines, some of which are in serious financial trouble. Their most important route for both prestige and profit has been over the North Atlantic, where the price cutting is deepest. TWA, for example, netted nearly $60 million on the North Atlantic route in the past three years. Were it not for those profits, the airline, which had a system-wide net loss of $64 million last year, would be in sorely critical condition. Pan Am generally loses badly on its Latin American run, where its operations are severely restricted by local governments, but makes up the losses on the Atlantic (though the line ran $29.5 million in the red on that route last year, largely because of the recession).* Even lines that do not make much money over the North Atlantic, including Aeroflot, Air-India and Finnair, cling to the route in order to fly their flags and attract foreign travelers to their countries.
In an inflationary age, when the price of everything else seems to be going up, why are North Atlantic air fares coming down? One reason is that they have long been overpriced, and a reduction is overdue. International fares usually have to be agreed upon unanimously by the 108 members of the International Air Transport Association (IATA), with the result that the least efficient, highest-cost carrier sometimes vetoes lower fares. The only exception to the unanimity rule occurs when an airline is "ordered" by its government to make a fare change. Sabena recently used that loophole to introduce the youth fares.
In basic economy class, it costs more to fly one way from New York to Paris ($298) than to Honolulu ($224), even though Honolulu is 1,200 miles farther away. Most businessmen and many tourists are unfairly stuck with those basic economy fares, which cover trips of 14 days or less. To lure more vacationers into their planes, the airlines have come up with a confusing welter of special prices (see box, page 64). All of them are aimed at alleviating the industry's toughest problem; empty seats.
That problem lately has been aggravated for several reasons. First, the airlines are prisoners of modern technology and old-fashioned competition. Whenever a manufacturer produces a bigger or racier plane, the chiefs of some leading airlines figure that they must have it, and then all other lines feel obliged to follow. The debut last year of the 356-passenger 747 jumbo jet left the lines with many more seats than they could fill. The lines added so many 747s in the last year that the number of seats on North Atlantic flights soared by 18%, to as many as 56,000 each way during peak summer days.
Brazen Cartel
Another factor is that the recession severely reduced business travel and caused many family travelers to dally in making vacation plans. Finally, the slow winding down of the Viet Nam War rapidly chopped into the business of the nonscheduled airlines: Overseas National, World, Saturn and others. World's military-transport volume, for example, plunged from $51 million in 1969 to $27 million last year. Hoping to make up for these losses, the nonskeds began competing even more aggressively for passenger business over the Atlantic, offering charter-flight fares as low as $180 round trip in some instances. Today the nonskeds have 18.5% of the North Atlantic business, including 35% of the West-Coast-to-Europe travel.
In consequence, scheduled lines began flying emptier and emptier planes. The average "load factor" on the North Atlantic fell from 53.2% in the first quarter of 1970 to 46.8% in the first quarter of 1971. The U.S. lines did less well than the average; Pan Am registered 38% and TWA 39.5%. True, the lines usually have slim tourist business during the early and late months of the year and raise their averages by packing them in during the summer rush. The biggest winners on the North Atlantic are two lines that cater to the ethnic trade: Israel's El Al last year ran 68.8% full, and Irish-Aer Lingus scored 68.5%. The emptiest carrier on the run was Japan Air Lines, with 30.5%.
The airlines have long been looking for a gimmick to round up passengers and knock down the nonsked competitors. At a secret meeting in the Hotel Plaza Athenee during the Paris Air Show in May, some European airline leaders came up with an answer: reduce fares for certain passengers. Sabena then moved by announcing the youth fare.
The cut fares are chopping into the airline industry's unity. Once solidly cemented together in IATA, which is the world's most brazen price-fixing cartel, the industry has taxied to the brink of anarchy. To debate the fare paring, a special IATA meeting opened two weeks ago in Montreal. Delegates are still negotiating in camera around a horseshoe-shaped table at the Sheraton Mount Royal Hotel, weighing some 200 different fare proposals. The one that stands the best chance of passage is an "advance-purchase excursion" plan: it would offer round trips to Europe for $200 (or $240 peak season) for all passengers who buy their tickets three or four months in advance. Other widely debated possibilities include: 1) extension of the youth fare to cover jet-setters aged 65 or over, 2) introduction of a "family fare" similar to that on U.S. domestic flights, and 3) broad reductions in the standard economy fares, perhaps coupled with elimination of the special discounts on longer "excursion" flights.
An Anglo-North American coalition of Pan Am, TWA, Air Canada and Britain's BOAC is pressing for broadly lower fares to woo more passengers. The U.S. Civil Aeronautics Board also supports this position. But an orthodox faction --including Air France, Swissair, Germany's Lufthansa, The Netherlands' KLM, and some carriers from developing countries--fears that widespread reductions would simply produce smaller profits and no substantial increase in business. The Montreal meeting will probably continue for several weeks. Though many of the European representatives still view air travel as a privilege of those in or above the upper-middle classes, a further drop in fares is likely, if only as a move to preserve unity.
Can the lines make money with the youth fares? The U.S. Civil Aeronautics Board reckons that it costs about $36,000 to fly a 250-passenger stretched DC-8 jet round trip between New York and Western Europe. That comes to about $144 per passenger--if the plane is full. For a 747, the round-trip cost per passenger is even less: $94. By charging $200 round trip the lines could turn a handsome operating profit--more than $30,000 per round trip for each jumbo jet--provided that they can come close to filling their cavernous planes on each and every flight. Sabena executives say that their youth fare is bringing in $22,000 a day. Pan Am has been flying as many as 400 youth-fare passengers a day. But Pan Am officials estimate that up to 50% of them had planned to visit Europe anyhow and merely cashed in higher-priced tickets to take advantage of the new bargains. In any event, the youth fares are likely to hurt the nonskeds.
More Cuts Ahead
Even so, the new fares please few in the scheduled-airline business, not even those who favor broad fare reductions. "It's one of the biggest frauds in the industry," said BOAC's Canadian Director John Gorman. "Why should youth travel be subsidized by everyone else?" Indeed, almost everyone else is angry. A pair of sisters, Elizabeth and Suzanne Marie Gallagher, have hit Alitalia with a $1.5 million class-action suit, claiming age discrimination in its $199 youth fare. The radio news staff of the Canadian Broadcasting Corp. has signed a petition to IATA members demanding an end to discriminatory youth fares. Aviation-law experts say that the fares may be discriminatory but are not illegal. They note that a special price is justified because the youth fare constitutes a special class of service; for example, on most lines, youth-fare passengers can get firm reservations only three to seven days in advance. (There may be some awful passenger jams around Labor Day, with all the unreserved young passengers trying to go home at once.)
Clearly, the youth fares are unfair to older people. The U.S. Department of Transportation wants U.S. and foreign lines either to eliminate the youth fares or extend them to all North Atlantic passengers. The department urges that youth fares be replaced by a more equitable "standby" fare. Under it, any customer without a reservation could go to the airport and take his chances on getting a seat. After passengers with reservations were loaded onto a flight, the airline would fill up empty seats with stand-by customers on a first-come, first-served basis--and at a substantial reduction in price.
One of the most radical ideas is to have the 21 scheduled North Atlantic carriers pool some of their flights and arrange departures in sequence, with all passengers flying standby. As soon as one plane was filled, it would take off and another would be rolled out--like a shuttle system. The problem would be in persuading the airlines, many of which are suffused with national pride, to agree. The lines might also whip the overcapacity problem by paring down overscheduled routes, as U.S. lines have attempted on domestic runs. The North Atlantic carriers could well drop some of the 17 to 23 daily flights between New York and London.
The rate situation is still uncertain, but some things seem clear: > Though some airline chiefs have talked of bolting IATA, the organization is here to stay, and all major fare changes will be hammered out through it. For all its faults, IATA is a necessary forum for airlines to exchange technical information, and it helps to maintain high safety and service standards. Even the Soviet Union's Aeroflot has lately raised its service standards in hopes of joining the capitalistic cartel.
> There is unlikely to be a move toward completely free competition. Such a step would produce a rate war, and foreign government-subsidized lines could make gross reductions, taking huge temporary losses, just to drive the U.S.'s private lines off the North Atlantic.
> Even so, there will be some general rate cuts, spreading to other lines and other age groups. Aeronaves de Mexico, on the "orders" of the Mexican government, has posted a $150 round-trip fare between five U.S. cities and Mexico City for people under 26 or over 64. That price is half the regular economy fare, and U.S. lines have announced that they will match it. Some long-haul fares within the U.S. may also come down, because it is now cheaper for young people to fly to Europe than to many domestic points (roundtrip economy fare is $308 between New York and San Francisco, $224 between Boston and Houston).
Lure of Lower Fares
As long-haul fares drift down the world over, the glories of travel will be opened to more and more people. Fewer than 6% of all Americans have ever been abroad, and the airlines would do well to entice many of the remainder to make the European trip, using the lure of lower fares. There are also uncounted opportunities for attracting many more foreigners to North America. Since the upward revaluations of European currencies last May, the Germans, Belgians, Austrians and Swiss can buy more for less in the U.S. Just under 1,000,000 Europeans visited America last year, and millions more could be tempted to make the trip if fares were generally lower. Some day before long, Portlanders may be complaining of pollution by package tour, Philadelphians may be fleeing their city each summer to avoid the foreign-tourist crush, and Peorians may find their hotels and highways cluttered with hordes of blue-jeaned young Europeans.
* All together, Pan Am lost $27 million in 1969, $48 million in 1970 and $37 million through May 1971. Compared with May 1970, Pan Am's passenger traffic was down more than 6% this May.
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