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Travelers should brace for steeper airfares: Industry experts

By Agence France-Presse
Tuesday, March 27, 2012 20:30 EDT
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People at airport via AFP
 
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WASHINGTON — Holidaymakers planning a getaway in the next few months should expect higher airfares, industry experts warned Tuesday, but airlines passing on higher fuel costs may be just the tip of the iceberg.

Pricier flights are starting to feel like a pre-summer tradition — as common as buying sunscreen or thumbing through a guidebook.

Airlines often jack up prices as the northern hemisphere’s season of high demand gets underway, and this year is likely to be no different.

In the last 24 hours, major US carriers — Southwest, Delta, United, US Airways, American and Virgin America — have raised prices on domestic round-trip fares by $6 to $10, according to Farecompare.com.

Blame it on fuel prices, says Farecompare.com analyst Rick Seaney: “I do expect airlines to ramp up hikes as we hit the busy summer vacation season, especially if oil remains high.”

According to the International Air Transport Association, the rising cost of jet fuel has added $39 billion to airlines’ energy bills in the last year. And that price is being passed on to the consumer.

Yet average prices for jet fuel have increased only 3.6 percent in the last year, far below the rate of fare increases.

Even before this week’s increase in the US, prices had risen more than four percent this year, after an increase of 17 percent last year.

Middle East tensions, oil prices and rising global growth are just part of the reason.

For airlines, the time is almost perfect to raise prices, according to George Hobica, president of Airfarewatchdog.com.

“It’s the proverbial perfect storm,” he said, pointing to a mix of better economic news, reduced competition, rising oil prices and a desperate need to make up for years of flying with empty seats.

“Considering that the airline industry has lost billions over the last decade, I wouldn’t call it price gouging,” he told AFP.

“They are trying to cover higher fuel costs, but I think a larger factor is trying to make up for lost time when there was over-capacity in the industry worldwide.”

Mergers and bankruptcies mean that over-capacity is being whittled away and is why passengers may have noticed those empty middle row seats filling up.

United and Continental, Southwest and AirTran, Delta and Northwest are just some of the airlines that have merged in the last few years.

On many routes, that has meant fewer airlines flying with fewer seats and fewer options for passengers — allowing prices to rise.

“With fewer competitors beating each other over the head with irrational fare sales, the airlines are able to raise fares,” said Hobica.

For legacy carriers — who have been operating for decades in a dominant position — low-cost carriers have also provided much-needed cover.

Southwest’s decision to kick off the latest round of hikes held greater significance for the sector, with legacy carriers admitting it was their cue to move.

“We matched Southwest’s fare increase yesterday,” one airline official told AFP.

When low-cost carriers hike fares, others can chose ‘fight or flight’ — most often, they plum not to start a price war, according to Seaney.

“In nearly a decade, we have never seen a domestic hike that included Southwest that did not succeed in raising base prices.”

Airlines are betting that growing confidence in the US economy will cause passengers to swallow the costs.

A survey released Tuesday by polling giant Gallup showed US economic confidence hit its highest weekly level since January 2008.

But with millions still out of work, the scope for increases is limited.

“When airline ticket prices hit consumers’ ‘no-go’ point — which appears to be getting closer and closer for some — those travelers will stop flying and airlines will notice more and more empty middle seats,” said Seaney.

“That will temper the pace and size of the airfare hikes.”

Agence France-Presse
Agence France-Presse
AFP journalists cover wars, conflicts, politics, science, health, the environment, technology, fashion, entertainment, the offbeat, sports and a whole lot more in text, photographs, video, graphics and online.
 
 
 
 
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