Tonight at 8:00pm EDT, after almost a month of silence on airfare hikes, Northwest Airlines increased domestic airfares by $80 roundtrip on over 4,000 city pairs for both leisure and business travelers.
While the total number of city pairs increased does not quite reach our threshold of 2/3 of a legacy airlines route system hiked for us to list this as the 22nd attempted hike of 2008, this particular airfare increase is noteworthy in that Northwest has not initiated any of the previous 21 attempted hikes of 2008 and has been habitually last to match the previous 15 successful hikes this year (success defined as all six legacy airlines matching on 2/3 of their respective route systems).
A quick check of Northwest hub cities shows significant airfare increase activity in Detroit with hardly any hike activity in Minneapolis or Memphis.
It will be interesting to see the reaction of the legacy airlines tomorrow to this Northwest "mini-hike".
Why have we had a one month break in airfare hikes after the torrid pace the first half of the year?
I think there are a couple of reasons, first we have seen the price of oil drop back to the mid $120s/barrel this month at the same time as many of the announced fee hikes have been kicking in with added revenue coupled with sluggish economic news.
The experiment I talked about in previous notes of almost weekly airfare hikes coupled with capacity cuts may be reaching the tipping point as summed up by Gary Kelly (CEO Southwest Airlines) in the most recent Southwest Earnings call (http://seekingalpha.com/article/86920-southwest-airlines-co-q2-2008-earnings-call-transcript?page=4):
"We have some evidence ... in the industry with our competitors where they feel like they’ve pushed fares too fast they’ve seen bookings in demand reduced and then they’d had to have the follow-on reaction of reducing flights, fleet, laying off employees and so there is just no pleasant way on the downside there to make that happen."
We will watch closely tomorrow as the next domestic airfare distributions at 10:00am and 12:30pm EDT occur for any reaction from the other five legacy airlines (American, Continental, Delta, United & US Airways).
The FareCompare.com 2008 Airfare Hike Timeline can be found at the following link: