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After months of steady increases, airline fares may have finally peaked - at least for a while, some experts say.
A fare increase implemented last Thursday by United Airlines, and followed the next day by American Airlines and Delta Air Lines, was dropped over the weekend when the entire industry failed to sign on. The increase, which was aimed at business travelers, raised prices $10 on round-trip tickets.
"It was rescinded for competitive reasons," American spokesman Tim Wagner said yesterday.
Most recent increases have stuck, as carriers struggle to compensate for the high cost of jet fuel. Heavy demand for travel this summer, coupled with cutbacks in domestic flights, has also given airlines leverage to charge more. Airline ticket prices are up 10 percent this year, according to the federal Transportation Department.
However, airline analyst Ray Neidl of Calyon Securities said yesterday that fare prices may stabilize now that carriers are moving into the traditionally weaker fall months.
"Fare hikes might be over for the short term as airlines examined how the fall traffic was holding up," Neidl told investors in a report. "Evidently, most airlines agree with the assessment of a weaker fall [travel] period."
But analyst Jamie Baker of J.P. Morgan Securities wrote that he wouldn't be surprised to see another attempt to raise fares in the near future.
"Look for another attempt in coming weeks, in our view, though one affecting all fare categories equally," rather than just business travelers, he wrote in an investment report.
Neidl said prices going forward would most likely depend on the demand for travel in the latter part of the year.
"If demand holds, we expect we will then see some further price increases at that time," he said.
Tom Parson, chief executive of the Bestfares.com travel Web site, said airlines are flying fuller than in the past, and this gives them an incentive to charge more.
Parson said planes were flying at about 88 percent of passenger capacity this summer, compared with the mid-70 percent capacity just before the Sept. 11, 2001, attacks.
"I think everybody is going to see increases" in fares, he said.
Baker, the JP Morgan airline analyst, said that since 2005, there have been 17 failed attempts to raise ticket fares and 21 that were successful.
"Look for another attempt in coming weeks, in our view, though one affecting all fare categories equally," Baker said in a note to investors.
United's move was to test the market for a higher rate. The carrier wanted to see if other airlines would match the increase to push up revenue or hold their prices down to snag more business. In this instance, competing airlines decided to try to lure away American, United and Delta travelers by refusing to go along with the increase.
"I think they have a dartboard," said Terry Trippler, an airline expert with Vacation Passport (myvacationpassport.com), an Internet travel club.
He said United's attempt is a healthy sign for the airline industry as it indicates airline executives thought another increase was possible.
"We have seen nine fare increases this year," Trippler said.
Airline pricing always has been something of a mystery. Book two weeks in advance and a flight might cost $300. Book one week in advance and the same seat might cost $700. Walk up to the ticket counter a few hours before the flight and prepare to pay even more.
But the Internet and travel services such as Orbitz and Travelocity have leveled the playing field, industry analysts say. "The flight-search Web sites default to the lowest fare," said David Stempler, president of the Air Travelers Association. "No airline wants to have a fare higher than others." Discuss travel news and reviews on our Travelers Forums. |