Staff Reporter

American Airlines' pending absorption of Reno Air has touched off a limited fare war on the busy north-south coastal routes.

Southwest Airlines recently discounted its fares on all flights within California to $78 round trip, from Aug. 16 to Sept. 30. Meanwhile, United Airlines, Delta Airlines, Northwest Airlines, America West Airlines and Alaska Airlines have announced fare reductions for selected flights from Southern California to as far north as Alaska for various time frames during the off-peak season.

In reaction to Southwest's price cut, American dropped its California fares to match.

"American is very actively trying to establish a stronger local presence, and the others are saying 'We're not just going to roll over,' " said Wido Schaefer, president and chief executive of the Travel Store, a travel agency in West L.A.

While some of these reductions are seasonal, the current wave of discounts demonstrates the importance that the carriers are placing on the California corridor, which concentrates between Los Angeles and the Bay Area.

"Capacity on the West Coast has been very steady over the years, and fares have already been lower than in the rest of the country," said Glenn Engel, an analyst with Goldman Sachs. "It is surprising to see prices going down at this point, because the trend has been for them to go up since flights have been fuller."

Because American's integration of Reno Air will not add any new capacity, Engel said, that alone is probably not the explanation for the fare reductions. Rather, by discounting their fares, Southwest and other airlines may want draw some attention away from American's expansion on a temporary basis.

"I suspect that it is a reaction to American's more active role in the regional market," said Bruce Baltin, senior vice president with PKF Consulting, a San Francisco-based hospitality-industry consulting firm. "American has been very passive on the West Coast for a long time, and they are getting a lot of attention now because of their acquisition of Reno Air."

American is the third largest carrier out of Los Angeles International Airport. Currently it accounts for 9.2 percent of the passenger volume at LAX, compared to 22.9 percent for United and 11.3 percent for Southwest. But after its integration of Reno Air, which carried 1.2 million passengers out of LAX last year, its market share will be nearly identical with that of Southwest.

For inter-California flights, market share is harder to determine. Southwest Airlines spokeswoman Kristin Nelson says her company accounted for about 50 percent of all inter-California flights during the fourth quarter of 1998. Observers say United's share is between 25 and 30 percent, while American's is believed to be in the single digits.

American Airlines acquired Reno Air last November, and starting Aug. 31 the airline will fold Reno's operations into its own. As a result, American will add 30 daily flights from LAX to San Francisco, San Jose and other routes it did not serve previously.

In addition to the Reno Air flights, American added another 20 new West Coast flights this summer. To top it off, the airline is completing the first phase of a $245 million overhaul of its LAX terminal to accommodate the increasing flow of passengers.

"In the total marketplace, not much will change other than that Reno's airplanes will have the American logo on their tails," said American spokesman Tim Smith. "Our main objective is to keep our passengers in our network by integrating the north-south routes along the West Coast. We have more passengers flying into LAX who transfer to other destinations in California, and we want to be able to offer them these connecting flights on American."

By integrating Reno's north-south routes, American will come into direct competition with Southwest and the United Shuttle, the carriers that dominate the local, short-distance routes with their high-frequency, no-frills flights.

Kristin Nelson, a spokeswoman for Southwest Airlines, said the announced reductions have nothing to do with American's local build-up.

Smith said American does not plan to match the high-frequency schedule of Southwest and United Shuttle. Instead, the carrier merely plans to upgrade Reno Air's planes and services.

And analysts say that going forward, American probably won't be willing to match Southwest and United Shuttle on price, either.

"Southwest and United Shuttle will continue to be dominant on the short-distance routes in California," said Schaefer. "American Airlines will not go head-to-head with them because they have a different customer base. On the surface they will advertise the same fares as the other airlines, but whereas Southwest will have 80 seats at the lowest price, American may only have 20."

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