Sky Wars

Since the beginning of airline deregulation in 1978, U.S. airlines have engaged in several costly and sometimes disastrous battles over fares. Last week the skirmishing resumed as American Airlines slashed prices on more than 2,400 routes by as much as 70%. Within 24 hours, American's new Ultimate Super Savers prices were matched by United, TWA, Delta, Pan Am, Western, Northwest and Republic.

American's new fares take effect Feb. 18. The one-way fare from New York to Chicago, for example, will drop to $69, compared with the full rate of $268. New York-to-Los Angeles flights, which are $469 at coach fare, went down to $129. Among the restrictions: a 30-day advance purchase requirement and a 25% penalty if tickets are not used.

Such restrictions failed to discourage potential passengers. Reservations lines were jammed last week as consumers rushed to book trips. To cope with the crush, American ticket agents were put on a six-day work week, part-timers were asked to work full time, and vacations were canceled. American, which expects to sell some 5 million seats at the new fares over the next three months, hopes to hit discounters like People Express hard by pampering passengers at comparable prices.

To Wall Street, American's move looked like an attempt to get out in front of the competition by jumping off a cliff. Many airlines are already losing money, and discount fares may mean bigger losses. Stock prices of all the large airlines that joined in last week's fare war fell sharply. American went down 2 7/8 points to 34 1/4, while United dropped from 47 5/8 to 43 7/8. Even shares of Boeing and McDonnell Douglas, the two major civilian aircraft manufacturers, were hurt, since the fare war may cut demand for planes by driving some carriers out of business.