What a Little Competition Can Do

Ask a member why he belongs to his favorite cartel, and he most probably will answer that he would go out of business if competitors could undercut his prices. That has been the standard defense put forth by the International Air Transport Association (IATA), the industry group that sets fares for overseas travel on scheduled flights. Still, it is amazing what a little competition can do.

Take the case of Laker Airways.

That is the non-IATA creation of Freddie Laker, the fast-talking Briton who has long been trying to crack lATA's monopoly on scheduled service between London and New York City by offering a daily, no-frills, nonreservation shuttle service at a round-trip price of just $236 (v. $631 for a 14-21 day summer excursion fare). IATA members vehemently opposed him, warning that his "Skytrain" service would hurt the scheduled carriers on the New York-London run and compel them to cut their losses by curtailing flights on less profitable routes elsewhere. Well, surprise. Now that Laker has won permission from the Carter Administration to offer his walk-on shuttle service beginning in late September, his IATA competitors are not only preparing to meet him head-on but suggesting that the fight might help them and the industry as a whole.

The two American carriers on the New York-to-London run, Pan Am and TWA, intend to announce their own plans for Skytrain-cheap travel soon, perhaps next week. The plans will be closely scrutinized by other airlines, especially those flying the hotly competitive North Atlantic routes, where four out of ten seats are empty on an average scheduled flight. Though neither Pan Am's nor TWA's packages will be identical to Laker's, they will both offer just about everything Skytrain does, plus a few things more:

PICK-A-WEEK. Pan Am aims to match Laker's $236 round-trip price but not his no-reservations style. Instead, the airline plans yet another new entry in the ever growing list of advance-booking schemes. A traveler who wants Pan Am's bargain rate will have to make a reservation at least three weeks ahead of time and be prepared to put up with some uncertainty: he can choose the week in which he wants to leave, but the airline has until a week before the start of the selected period .to inform him of the exact date and hour of his flight. If he then decides not to go after all, he gets only half his money back.

SUPER STANDBY. TWA's proposal will evidently be in essence a modification of Laker's stand-by plan. The fare would be close to Laker's. But instead of having to purchase their tickets at the flight gate, Skytrain-style, bargain travelers on TWA would be able to buy them in advance, either from the airline or a travel agent. The ticket would be good for any flight, on a space-available basis; if no seats are available when the passenger wants to leave, he can try another flight or return his ticket for the full purchase price.

Pan Am's scheme would offer a measure of certainty for travelers who would not care to wind up loitering at the airport waiting for a seat--as they could under the TWA or Laker plans. But stand-by service might appeal more to those unable to make their reservations well in advance, as Pan Am will require. Unlike Laker, whose stripped-down service will not include meals, drinks or movies, both Pan Am and TWA plan to offer their discount passengers all the economy-class amenities, perhaps at a small surcharge over the Skytrain price for some of them. Also, both American carriers land at Lon don's convenient Heathrow Airport; Laker's planes use Stansted Airport, 45 miles from the city. During peak sea son (June 1-Sept. 14), Skytrain will fly eleven times weekly--and for the remainder of the year only once a day--but Pan Am and TWA have nearly twice as many daily flights. As with Skytrain, discount fares on the two American carriers will offer an unlimited length of stay before the return trip.

Is Freddie Laker concerned about his IATA competitors? No, to listen to him. Says he with a chuckle: "If Pan Am wants to dilute its earnings and go broke, why should I worry?" In fact, Pan Am seems likely to survive. After eight years of losses caused by a recession-induced downturn in international air travel at a time when it had spent heavily on new jumbo jets, the airline is now apparently on the mend and has reported its first profits for the month of May since 1968.

Although North Atlantic scheduled air travel was up about 9% for the first quarter of 1977, the increase would have been even greater had it not been for the stiff competition from charter airlines. Industry experts believe Pan Am's and TWA's experiments on the London route could show the scheduled carriers how to lure cost-conscious travelers without cutting into present economy-class revenues. After all, with more than a quarter of all Pan Am's seats between New York and London now being flown empty, every seat sold to a passenger who would not have gone at all without the cheap fare is money in the bank.

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