Business

Airlines now looking to increase fares

CHICAGO — Wrapping up a year that featured a decent rebound in business and leisure travel, some large airlines are looking to squeeze a bit more money out of their clientele in 2011, this time by raising fares rather than fees.

AMRs American Airlines just slapped an extra $20 on round-trip flights after bumping them up by $10 earlier this month, to be quickly matched by United Continental Holdings, Delta Air Lines and US Airways Group, according to FareCompare.com, a site that tracks price moves.

So far, Frontier, JetBlue Airways and Southwest Airlines have yet to follow suit.

Rising fuel costs are driving some of the hikes, but relatively brisk demand and diminished capacity are also giving carriers leverage that they have not had since before the start of the global economic slowdown.

Also, this is unlikely to be the last round. "Oil prices have gone up from $80 a barrel to nearly $100," said Michael Boyd of Boyd Group International, an industry consultancy. "Next year, traffic may be flat at best and the demand is probably going to get a little weaker — so revenue per passenger has to go up."

In addition, "there is no new capacity online to speak of, and they can even pull it down more if the economy gets any worse," Boyd said. "The other good news is that the industry is in a relatively strong position to handle a modest downturn."

Graeme Wallace, chief technology officer at FareCompare, noted that "January-February is usually the lowest part of the year for domestic travel, and normally at this point in time, airlines are trying to roll out some sales."

But, he added, "If oil prices continue to rise, then we are probably (going to see) fares track them higher."

These latest increases follow a stretch that has seen domestic and international tariffs increase, according to recent data from American Express Business Travel. The average domestic airfare paid in the third quarter was up 6 percent from the same quarter of 2009 and the average international one spiked 8 percent. While both are still below where they stood in the third quarters of 2007 and 2008, Amex said that is an indication that price increases have kept a steady pace as travel levels start to grow again.

The (third) quarter brought "a distinct shift from a buyers' market to a suppliers' market, leading to higher prices across several travel categories including airfare," said Christa Manning, director of expert insights research at Amex Business Travel. "Airlines have been especially successful in constraining capacity and increasing fares to create more sustainable financial stability."

That comes on word early this month from the Air Transport Association of America, an industry trade group, that passenger revenue jumped 14.5 percent in November alone, making it the 11th straight month of year-over-year growth. Miles flown by paying passengers were up 6.5 percent, while the average price to fly one mile rose 7.5 percent.

"These revenue results give us confidence (for) the winter holiday season," said James May, ATA's president and chief executive, in the announcement. "The relative strength of demand for traveling and shipping in international markets is especially encouraging."

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