Airlines Try Another Fare Hike
Major U.S. airlines are raising fares again, but this time some are trying to smash a fare cap Delta Air Lines (DAL:NYSE - commentary - research) put in place in January with its Simplifares initiative.
On Thursday afternoon, Northwest Airlines (NWAC:Nasdaq - commentary - research) raised fares on a significant number of its routes, the airline said in a message to employees. In markets where it goes head-to-head with low-cost carriers, it boosted ticket prices $5 to $10 each way.
But in a bolder move, Northwest raised by $50 each way fares that had been affected by Simplifares, which capped last-minute walk-up tickets at $499 each way. Analysts say Northwest was particularly hard hit by the cap, but like other airlines, it found itself forced to go along with it.
The Eagan, Minn., airline also put two-night minimum stay requirements on some fares that used to require only a one-night stay. By Friday afternoon, AMR's (AMR:NYSE - commentary - research) American Airlines, Continental Airlines (CAL:NYSE - commentary - research), Delta and US Airways (UAIRQ:OTC BB - commentary - research) had largely matched Northwest's $5 and $10 hike, representatives for the airlines confirmed.
Terry Trippler, the in-house airline expert at the travel company 1-800-CheapSeats, said UAL's (UALAQ:OTC BB - commentary - research) United Airlines had also matched the $5 and $10 hike, although an airline representative couldn't be reached.
Trippler said Continental and United also matched the larger increase breaching the $499 Simplifares cap, characterizing it as the first "real attempt" to remove it. A Continental spokeswoman confirmed the move. It remains to be seen whether the latest increases will hold, however. A separate attempt to boost fares last weekend fell apart after AMR and Northwest backed off.
Since February, the industry has successfully conducted seven rounds of increases as passenger demand has risen ahead of the peak summer travel months. The moves have boosted revenue, although not enough to offset the effect of historically high jet fuel costs.
In its message to employees, Northwest said its latest moves reflected the need to be selective in how it raises fares. "While record high fuel costs require Northwest to increase revenue through fare increases, we need to increase the fares that customers are buying and will actually raise revenue," said Tim Griffin, the airline's vice president of marketing and distribution, who was quoted in the message. "The prior increases have run their course and we need to be more targeted in our approach."
Another Northwest executive said that fares matching low-cost carriers had remained low for Northwest and offered the greatest potential revenue increase if lifted throughout the industry. At the same time, other fares had become so expensive that some consumers were choosing not to fly.
Source: Ross Snel - TheStreet.com
