Airlines raise some fares; 10th increase of the year
— -- Airlines have increased fares for the 10th time this year, zeroing in on pricey, last-minute tickets bought most often by corporate travelers.
US Airways sparked the increase last week by raising the price on those same-day tickets by $6 to $10 round trip. Other major carriers, such as American and Delta, soon matched.
But it was Southwest's decision to match the increase that helped ensure it would stick — unlike eight other times airlines sought to raise fares this year, says Jamie Baker, managing director and U.S. airline equity analyst for JPMorgan Chase.
"Any airline can effectively block an increase, given the industry's reluctance to tolerate pricing discrepancies," Baker says.
Southwest, whose low fares traditionally drive prices down across the industry, is the carrier that has often bucked the trend.
"Had Southwest not joined," he says, "we are highly confident that the increase would have unraveled over the weekend."
Base fares paid by travelers in May, June and July were roughly 9% higher than in those three months last year, Baker says.
Airlines are raising prices to cope with the escalating cost of fuel and to try to post a modest profit this year. But bad weather is making it tough on them.
Airlines have canceled thousands of flights this year because of snow storms in January and Hurricane Irene last month. Irene caused losses of about $70 million, Baker says.
Indicative of the pressure to make a profit: Delta last week announced it would lay off about 200 administrative workers because of the economic pressures.
The increase in fares aimed at business travelers isn't likely to be followed immediately by a rise in prices for advance tickets favored by leisure travelers, says Rick Seaney of FareCompare.com who monitors prices.
"We're in the middle of the slow season with kids back in school," Seaney says. "To get a leisure fare hike in right now, considering where the economy is, I'd be surprised."
Travelers shouldn't expect many breaks, though. On top of higher fares, airlines will cut flights, if necessary. "We believe the industry will act aggressively to preserve profitability, and that is largely accomplished by either pushing for higher fares or reducing the number of flights that are offered," Baker says.
