Come Fly the Costly Skies

By Nancy R. Gibbs

Until this week, for every 100 people jostling on board the Continental Boeing 747 en route from New York to Los Angeles, chances were that 90 of them had bought their tickets on the cheap. The other ten had shelled out as much as $866. The business travelers had probably paid $550, the pleasure trippers $362, the bargain hunters as little as $159. The only people who did any better were the frequent flyers who cashed in their mileage and paid nothing at all.

But from now on, a lot of passengers are going to be paying more. Last week, following Continental's lead, major airlines threw out their so-called junk fares, which offered discounts on tickets purchased three to seven days in advance. Since most last-minute flyers are business travelers, few vacationers would be affected. But at the same time, Continental was tinkering with its MaxSaver fares, the popular, deep-discount tickets that must be bought two weeks in advance and require a Saturday-night stay. Starting this week, most MaxSaver fares will increase between $10 and $20 each way.

One by one the other airlines followed suit, although at week's end Midway | and Southwest Airlines were still resisting the increases and Eastern had raised only some of its fares. Many airlines have consolidated their market share in recent years by buying smaller companies and aggressively cutting prices. Now, with air traffic up a surprising 8% last month over a year ago, the carriers are testing to see whether rising demand can withstand higher prices.

"I don't see any way of combatting this, other than not traveling," says Stuart J. Faber, director of the National Association of Business Travel Agents. Those who have no choice could find their travel costs rising roughly 15% to 20%. "Now I'll really get hurt if someone calls on Tuesday and says, 'We have to have you in New York on Friday,' " says Gregory Boyd, a California venture capitalist. His solution: buy partially refundable tickets in advance and swallow the penalty if he cancels. "Instead of flying to New York for $1,200, I'll book a week in advance -- $600 round trip -- and take the 25% penalty. Then, even if I don't go, I'm better off."

Saddled with a reputation for erratic performance, Continental pioneered the junk fares last February to woo business flyers. "Our first order was to restore the quality of the operation and then offer a fare structure to entice the frequent flyer back," explains Continental president Martin Shugrue. Other airlines soon followed, but reluctantly. "We never thought these fares made much economic sense," says Al Becker, spokesman for American Airlines. "We matched Continental for competitive reasons."

The decision last week to abandon the discounts reflects a new cockiness at Continental: complaints to the Department of Transportation are down 80% since last year. Says Shugrue: "Continental has improved its service to the point where we can be truly competitive and price our fares on a competitive basis."

The airlines should do nicely under the new price structure: analysts estimate that industry revenues ($45 billion in 1987) could rise by as much as $1 billion dollars next year. But others warned that if traffic drops off and some airlines reinstate the discounts, the whole new price structure could come apart. Once the peak holiday season is past, analysts predict, the airlines may reintroduce discounts under new names to attract passengers during the slow winter months. "These guys are in the business of putting fannies in seats," says John Pincavage, an analyst at Paine Webber, "and the way to do that is to offer discounts."

CHART: NOT AVAILABLE

CREDIT: TIME Chart by Cynthia Davis

CAPTION: HIGHER FARES FOR BUSINESSMEN

With reporting by Michael Cannell/New York and Deborah Fowler/Houston