Fasten Your Seat Belts for The Fare War

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AS AMERICAN AIRLINES LAUNCHED its new streamlined U.S. fare system last week, the traveling public responded with a round of applause and a ring of the reservation phone line. The reforms jettisoned a maddening maze of rates and restrictions and replaced them with just four new fares that provided savings of up to 50% for first-class and nearly 40% for business flyers. Competitors jetted to join the cut-and-simplify frenzy, with United's top executives holding late-night sessions to get their own new fares into ads right on American's heels. "This is good for the traveler and good for the company," says Edmund Greenslet, publisher of the Airline Monitor trade journal. "This new structure was long overdue."

There's no doubt that almost everyone stands to gain as the new fares generate more traffic. Last week American, United, Northwest and Delta said they received twice as many fare inquiries as usual. "The response was unprecedented," said an American spokesman. "We read it to mean we had struck a chord with customers who had been complaining about the complexity of the system."

But there is a darker side to the fare war: many experts see it as a thinly veiled declaration of war against low-cost rivals like TWA and Continental, which currently fly under the protective wing of the bankruptcy courts and thus pay no interest on part of their debt. Life will get rougher for them once they emerge from Chapter 11 protection and are forced to survive on their own resources -- something many analysts fear these weaker carriers may be unable to do for long. Once rid of such pesky competitors and their cutthroat tactics, the major airlines could regain full control of airfares -- and might then be free to raise them. "This is the nightmare that the marginal carriers didn't want to see happen," says John Riener, president of commercial operations for Carlson Travel Network, the largest U.S. travel company. "There's the scent of a final kill in the air."

American insists that it merely wants to bring order to a chaotic fare system that discouraged air travel and encouraged ruinous price wars. Under its old system, American and other carriers offered as many as 200 types of fares and discount plans for any given route, a system that most travelers * found confusing and unfair. "Everybody will benefit from this new plan," says Robert Crandall, the company's aggressive chairman, who pioneered innovations like frequent-flyer programs and supersaver fares.

If the new fare structure holds up, it could finally halt the proliferation of discounts in a price-cut-happy industry. "The driving reason for the change is American's desire to get more control over its pricing system than it had when there was a hodgepodge of fares out there," Greenslet says. "American's objective is not to drive TWA out of existence," he asserts. "They can live with TWA operating with a different fare structure, as long as it doesn't declare war."