The US Department of Transportation began publishing its domestic airline fares consumer report in response to an increasing number of inquiries about ticket prices. The first report, for the third quarter of 1996, was released in June last year and the latest report is based on data for the second quarter of 1997.
The initial report provided information on average prices in the 1,000 largest city-pair markets - some 75 per cent of all 48 contiguous state passengers. The current report includes the same 1,000 city-pair markets, plus 117 new city pairs that were in the top 1,000 markets during the fourth quarter of 1996 and the first quarter of 1997.
The report has been heavily criticised by the major carriers, whose chief gripes are that publishing average fares can be misleading, that each report is based on data that is several months old by the time it is published, and that it is a poor use of the DOT's scarce funds. Still, the DOT has persevered, placing each report on the World Wide Web and providing copies to public, civic and airport officials. It also adds a special feature section that usually highlights the effects of the entry or exit of a low-cost carrier in a particular market. The DOT says one of its goals is to respond to consumer input and that there has been 'considerable interest' in markets that have experienced large fluctuations in average fares.
In its latest report, the DOT analyses fare and traffic changes in Providence, Rhode Island, following the start of Southwest Airlines services out of Providence's T F Green Airport on 27 October, 1996.
The effect of Southwest's arrival, says the DOT, was 'immediately evident'. Average fares in six Providence markets have dropped by more than 30 per cent and have been maintained at the lower levels. There has also been a dramatic rise in passenger numbers. In the second quarter of 1996, just before Southwest's arrival, the average fare in 14 Providence markets was $291. By the second quarter of 1997, it was down 53 per cent to $137. Passenger numbers in those markets have risen by 260 per cent from an average of 1,417 to 5,100 daily.
In an attempt to isolate the true effect of Southwest's service, city pairs were split into two groups: those served by Southwest and those not. Average fares fell by 47 per cent in markets served by Southwest, but by just 14 per cent in the others. 'In addition to bringing lower fares to the markets they serve directly, low-fare competitors also influence prices in close-by or substitute destinations,' says the DOT.
The DOT also believes Southwest's service out of Providence demonstrates that low fares provide a sufficient incentive for many consumers to sacrifice some service aspects. It cites the Phoenix-Providence market, where average fares have decreased by 58 per cent from $324 to $135. The DOT days Southwest has been able to attract customers to this market, even though its service requires two or three stops en route and various competitors offer single-connection flights of shorter duration.
Other reports have shown the effects that the new market entry of low-cost carriers such as Reno Air and Vanguard have had on fares and traffic. 'In each instance, traffic volumes at low fare levels increased substantially, the level of the lowest fares was reduced substantially, and most passengers who had previously paid higher fares before low-fare entry now do not,' says the DOT.
Source: Airline Business
