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If People is bought by another airline, the intensity of the industry's fare wars will probably ease somewhat, but cheap air travel will almost certainly not disappear. The carriers can afford to keep fares low because their costs are dropping dramatically. For one thing, the industry expects to save $2 billion on its fuel bills this year as a result of declining petroleum costs. In addition, the airlines are curbing payroll expenses through staff attrition and employee wage concessions. The cost of carrying a passenger for a mile on traditional airlines averaged only 7.7 cents during the first quarter of 1986, an 11% decrease from 1985. Wall Street analysts predict that as traffic picks up during the peak summer travel season, the industry will enjoy a turnaround and make a profit for 1986 as a whole.
What virtually ensures the continuation of discount fares is the law of supply and demand. In 1978, when the industry was deregulated, U.S. airline capacity amounted to 382 billion so-called seat miles, representing the total number of passenger spaces available multiplied by the total route mileage that could be flown. Today that capacity has reached 547 billion seat miles, a 43% increase. There are plenty of seats, in other words, to go around. Says Julius Maldutis, an airline analyst for Salomon Brothers investment firm: "The airlines are locked into a low-fare environment from which there is no return." No matter what happens to People Express, its impact on air travel will not be easily undone.
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