Market Focus
Fuel-Related Air Fare Increases Appear To Be Holding
Aviation Week & Space Technology
03/07/2005, page 10
James Ott
Cincinnati
MARKET FOCUS
The recent $5 and $10 distance-related U.S. airline fare increases that were implemented to help cover the explosive rise in fuel costs finally appear to be holding. All attempts to hike ticket prices last year failed. Typically, Northwest Airlines played the independent and didn't apply increases in ways that competitors wanted. But in a turnabout, Northwest put some heft into the new prices, which were first offered by American Airlines, by including them for last-minute business fliers.
"The desperation is a little greater," says analyst Edmund S. Greenslet of ESG Aviation Services, in commenting on what's behind Northwest's action. "It's long overdue."
Low-cost carrier AirTran Airways raised fares, but JetBlue Airways and Southwest Airlines did not. During the last week, airlines tinkered with increases, withdrawing them where the competition is tough such as where JetBlue operates. Dallas fares watcher Tom Parsons believes the surcharges will apply only to the 20% of markets where legacy airlines have little or no low-fare competition.
Still, the fare hike will bring in some cash, and there's no doubt that it will be needed. Even hedge prices through the summer indicate a barrel of crude oil will remain at $53, a price that gives heartburn even to executives at low-cost airlines. Furthermore, it doesn't appear that Saudi Arabia, which provides 15% of U.S. crude imports, is in any mood to relieve the situation. Saudi Arabia was expecting a 2004 budget deficit based on a $19-per-barrel price, but it produced a $26.2-billion surplus because of the higher actual prices. A U.S. Energy Dept. analysis indicates high prices will continue through 2006.
Fare increases are a cause for some hope and a lot of hype. Historically, Northwest has been known as the spoiler against reforms of the complicated tariff system. In the 1990s, Northwest was instrumental in foiling American's attempt to simplify the structure and reduce the number of fares. More recently, NWA officials complained about Delta Air Lines' Simplifares, which constitute an effort similar to American's fare restructuring. But in a switch, NWA matched many of them. Simplifares are providing legacy airlines with a weapon against low-cost carriers. Officials at NWA excuse their pricing behavior on grounds that 70% of Northwest customers have a low-cost carrier available.
In contrast to Northwest, Southwest usually "avoids the fare-increase limelight," notes JP Morgan analyst Jamie Baker, "choosing instead to spread an increase over several smaller initiatives, usually just a few hundred markets at a time and usually by no more than $3 one way."
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The bolding above is mine. Any extra revenue is a welcome thing, but it won't provide near the relief that USA320Pilot and Lauer (as quoted in the media) claim it will.
Jim
