Major U.S. carriers earlier this month finally succeeded in raising fares, albeit to a limited degree, pushing leisure-oriented fares higher as much as $10 each way. At the same time, several overseas carriers raised passenger fuel surcharges to help counter stinging oil prices.
Helane Becker, analyst with The Benchmark Co., said recent domestic fare hikes were aided by Southwest Airlines' decision to raise one-way fares by a few dollars. "We are encouraged by the improving pricing environment, but with oil prices at levels that are between $50 and $60, we do not believe the industry has any choice but to raise fares."
"If there was a straw that broke the camel's back, it was oil at $52 a barrel," said Terry Trippler, airfare watcher and president of HubCityMSP.com. "The airlines decided enough was enough and let common sense prevail." Trippler pointed out that airlines "don't want to raise fares on business travelers" who already purchase higher-priced tickets, on which airlines still can make money.
"Nonetheless, for those who have routinely bemoaned the apparent lack of industry pricing power, it would appear that we may have reached an inflection point where legacy carriers are slowly regaining their pricing traction," said J.P. Morgan Securities analyst Jamie Baker. He estimated that recent price hikes cover 70 percent of fares available in the domestic market, accounting for as much as 40 percent of industry revenue.
While oil is one catalyst, early moves to slow capacity growth, if not cut domestic capacity, may be another in the coming months
(see story).Meanwhile, several overseas carriers last week raised or reinstated fuel surcharges as the price of a barrel of crude oil continued to inch higher into record territory. Lufthansa said that due to the near-doubling of oil prices during 2004, it was "compelled to respond." The German carrier raised short-haul surcharges to e7 per segment, up e5, and long-haul surcharges to e17 per segment, up e10. Lufthansa said current fuel surcharges would remain in place until the price of crude falls below US$40 per barrel for 30 consecutive days.
Air France and KLM Royal Dutch Airlines made similar pledges for their fuel surcharges, which last week were raised e11 and e7, respectively, per long-haul segment. Both carriers left unchanged the charges in place for European flight segments.
Also last week, British Airways increased long-haul fuel surcharges levied in the United Kingdom from £6 to £10 per segment and short-haul fuel surcharges from £2.50 to £4 per segment. From other European points of sale, short-haul surcharges now are e6 per segment and long-haul ones are e14 per segment. Flights booked outside of Europe now incur an extra US$7 on short-haul segments and US$17 for long-haul segments. "The continuing rise in fuel prices sadly makes these increases inevitable," said BA commercial director Martin George.
Low-cost carrier and BA rival EasyJet, however, used the opportunity to again bash BA's policies and pledged to avoid fuel surcharges. "EasyJet does not believe fuel surcharges work," the carrier said in a statement. "Putting fares up simply reduces demand."
While other European carriers also raised fuel surcharges, Trippler said he was "puzzled" by U.S. carriers refraining from implementing similar measures on international routes. "You would think they would try international surcharges before domestic," Trippler said. "They are higher fares, and you could bury it in there."
Instead, American Airlines discounted business class fares between certain U.S. cities and dozens of destinations throughout the Caribbean, Mexico and Latin America. The airline said the new prices are not short-term, but "part of the regular fare structure." The fares are available at 14-day and seven-day advance purchase levels, which are nonrefundable, as well as three-day advance purchase and walk-up levels. All new fares require a roundtrip purchase.