Oh, What A Lovely Fare War

Travel-related industries are feasting after a two-year fast

Jeffrey Axelrod thought he had lost the customer. Then, after more than two years, the San Francisco-based robe manufacturer got the call: an order for 1,000 new terry cloth robes to swaddle a horde of expected guests at the ritzy St. Francis Hotel. And that's not all. The phones at Axelrod's Ax'ent Inc. have been ringing steadily in the wake of the recent airfare wars.

For the first time in oh so long, Axelrod's clientele is busily preparing for a much-needed flood of travelers. "You can just feel it in the industry. There's a frenzy," he says. From robes to honey-roasted peanuts, travel- and hospitality-industry suppliers--big and small, coast to coast--are feeling the effects of the recently ended airfare supersale.

This Christmas in June--and July and August--didn't come cheap. The beleaguered airlines themselves stand to lose up to $500 million on the cut-fare gambit. But at the same time, they've filled their planes, jump-starting the summer travel season. "The sale of the century certainly gave a boost to the nation's economy," American Airlines Inc. Chairman Robert L. Crandall told a gathering of travel agents in Dallas. "It will create at least 70,000 new jobs in the U.S. and stimulate our domestic economy to the tune of $2.5 billion this summer."

COUPES TO NUTS. Economists would quibble with that estimate, but the boom is definitely on. The travel business had been in a two-year slump until May 28, when the mother of all fare wars broke out. Thousands of eager travelers rushed to beat the June 5 deadline. And as a result, the airlines have filled 95% of their seats for the summer travel season, vs. average summer capacity of about 60%.

Some related players felt the heat right away. Three days into the fare war, Hertz Corp. bought 20,000 new cars to meet demand for rentals. It also held on to 10,000 vehicles scheduled to go out of service. Hertz, which is 49%-owned by Ford Motor Co., went so far as to buy GM cars to fill the gaps in its fleet. "Frankly, we took whatever we could get, from anywhere," explains Craig R. Koch, a Hertz executive vice-president.

For others, the good times are only beginning to roll. Dallas-based Eagle Snacks Inc., a unit of Anheuser-Busch Cos., is gearing up for a 15%-to-20% increase in orders for peanuts and other in-flight snacks. At Form Plastics Co., an unexpected influx of fresh orders will keep the production line busy all summer. The company, located near Chicago's O'Hare International Airport, sells the lightweight plastic dishes used to prepare airline meals. The company says its revenues will jump 18% to 21% from last year's $12 million as a result of increased summer travel.

But not everyone is thrilled with the fare war. Amtrak, for one, saw its sales slump 4% during the skirmish. And many of the nation's travel agents complain of being overworked and unprepared for the cuts. Charles J. Roumas, marketing vice-president at Travel One Inc. in Mount Laurel, N.J., says tensions around his office were so high during the fare war that when airline reps came for appointments, he didn't dare let reservations clerks see them. "It was to the point that I couldn't allow an airline rep to walk through the office," he says. "They literally would have been lynched on the spot."

LIMITED VISIBILITY. Some suppliers are beginning to worry about a slump once the discount tickets are all used up. Chicago's Culinary Foods Inc., which caters in-flight meals, will see a 20% surge in revenues over the next two months, predicts Ina F. Manaster, vice-president for sales. "It's going to be a nice summer, but we'll see how long a winter it's going to be," she says.

Many of the travel boom's beneficiaries are content to let the future take care of itself. Pedro Weiner, a merchant at Fisherman's Wharf, the San Francisco tourist mecca, is increasing his inventory of sweaters, leather goods, and upscale sportswear by 10%. "You have to take a gamble," he reasons. For Weiner and many others in the tourist and travel trade, whatever the fall brings, a blazing summer rebound is already here.

Before it's here, it's on the Bloomberg Terminal.