Sunday, March 16, 2008

Big New Fare Hike: All Aboard

Northwest joined in the round of airline fare hikes, making it likely it will stick. Legally, airlines are not allowed to collude on fares because it would constitute price fixing, but they all seem to be marching and matching to the same tune these days ...

Here's an update -- with some good advice and analysis -- from Rick Seaney, the CEO of


By Rick Seaney

"Update 3 – All Legacy Airlines Match United Increase, Will it 'Stick'?

Saturday, March 15, 2008 11:03pm CDT

Earlier this evening in the 5:00pm EDT domestic U.S. airfare distribution Northwest Airlines completed the matching of the unprecedented $4 to $50 roundtrip increase initiated by United Airlines late Thursday evening.

Northwest Airlines had been last to match on several of the past increase attempts and their matching tonight marks the 4th increase by the legacy airlines in consecutive weeks and the eighth attempt at an increase in 2008 (six – including this increase --“successful”).

Tonight Northwest Airlines completed what can only be described as the most broad based single domestic U.S. airfare increase since I began closely tracking airfares in 2002.

United had attempted on January 11th, 2008 to increase the fuel surcharge from what was then $20 roundtrip to the then unprecedented level of $50 roundtrip (an increase of $30 roundtrip) -- which was then the largest single increase we have tracked -- but that particular increase attempt fell apart when Continental Airlines bailed out. It subsequently took an additional 5 weeks with incremental increases of $10 roundtrip (every week or so) to get to the current $50 fuel surcharge level by mid February - That fuel surcharge increase attempt in mid January pales in comparison to this particular airfare hike.

Most of the U.S. airlines continue to be upbeat about travel demand (short term) and have been churning out more revenue per passenger in the first two months of 2008 than the same time period last year, but there is no doubt airlines must be fidgeting with their worry beads as the 2008 economic forecast continues to slide and the seemingly unending march of oil prices continues through low $100’s per barrel and possibly beyond.

Most airlines had been on a “financial roll” up to the end of the 3rd quarter of 2007, when they were blindsided y fuel increases that stopped their momentum in its tracks.

What are the airlines choices in a $140 barrel of oil environment and looming economic downturn?

Well, it is pretty simple and not very pretty for anyone involved, airlines and passengers alike:

Airlines can continue to daub the wound by increasing airfares every week (or so) until corporate and leisure passengers significantly begin to push back

· Ground a significant portion of the most unprofitable flights (they have already been reducing either capacity or growth significantly in the past few years)

· Spin off or divest assets (frequent flyer programs, maintenance operations, …)

· Merge (not likely to help in the short term)

· Combination of all these

What can passengers do?

Unfortunately travelers better prepare themselves for more inconvenience and packed planes (if it is possible to be more packed) and higher prices for the foreseeable future. Airlines will continue to be promote deals, competition will foster deals in certain cities and travelers must be willing to be more flexible, by traveling on the cheapest days, Tuesday, Wednesday and Saturday and choosing the times of day and paths less traveled.


I am predicting this increase will “stick” for a few reasons:

Demand continues to be firm for the moment

  • United rolled back a few of the smallest increases tonight ($4 and $8) which were mostly overlapping with lower cost airlines, but did not touch the much higher $20, $30 and $50 roundtrip increases
  • The legacy airlines were swift to match what is a relatively complex – laddered – increase without much hesitation
  • They need the additional revenue to offset the highest jet fuel prices in history""
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