Continental Airlines expands low-fare strategy

NEW YORK (AP) — Continental Airlines is expanding its new “Peanuts Fares” price strategy, converting another 13 percent of its daily flights to simpler, sometimes cheaper, fares.

With the addition of more flights as of June 23, the airline will devote about half its schedule to the new fare structure. By the end of next year, the airline plans to hire 400 more pilots — an increase of about 10 percent — to handle the added flights.

The expansion includes flights into Philadelphia, a stronghold for USAir, and increases the competition between the two on the East Coast. A USAir spokeswoman said the airline would be competitive with the new fares.

Fare cutting by Continental and Southwest Airlines has contributed to recent losses at USAir as it matched its competitors’ prices. USAir thus has been forced to find new ways to lower its costs.

Many of the Continental routes take advantage of lower overhead as a result of efforts to mimic Southwest’s cost savings.

The bulk of the flights seek to cut the highest fares, commonly those bought at the last minute by business travelers. At that same time, many discounts enjoyed by leisure travelers have been eliminated. The result is that the average fare paid frequently goes up, said Donald Valentine, the airline’s senior vice president for marketing and sales.

For instance, on several routes from Denver to the West Coast, the average fare was $87 one-way. The airline adopted a standardized price, offering every seat for $99 one-way.

The pricing structure, first introduced in October, is reminiscent of “Value Pricing,” the simplified fares adopted nationwide by American Airlines two years ago. The Value Pricing strategy failed after American’s initial refusal to modify the plan contributed to an industry fare war in the summer of 1992 that included half-off fares.

Continental and Northwest Airlines claimed American’s Value Pricing plan represented an effort to drive competitors out of business. A federal jury cleared American of the antitrust claims last year.

Continental has slowly adopted its pricing strategy in select markets with an eye toward avoiding a hostile reaction from other carriers.

“It would be suicide to adopt the pricing scheme systemwide,” Valentine told reporters in New York. “We would die of a thousand lashings. … If you play with other airlines’ pricing, they won’t like that.”

Continental on Monday said it would expand the simpler fare structure to 1,167 daily flights this summer, including more flights to the New York area, Philadelphia and Boston.