Airlines' fare hikes stick as fuel costs surge
KANSAS CITY, Mo. - Airfares have risen this year at their fastest pace in years as airlines have had more success in passing on the higher cost of fuel to passengers.
The average price of a ticket on a U.S. airline, including baggage and other fees, was 14 percent higher in March than a year earlier. That's the biggest 12-month increase and March's highest average price in at least a decade.
That's also a much larger increase than the 5.2 percent rise in the fourth quarter of 2010 from a year earlier, reported by the U.S. Department of Transportation this month. The department reports only average base fares, excluding added fees, which could account for much of the difference.
Port Columbus has long had lower-than-average fares, although its year-over-year increase of 5.1percent in the fourth quarter was in line with the U.S. average.
The five biggest U.S. airlines lost a total of a little more than $1billion in the first quarter, but they appear determined to avoid a repeat of the multibillion-dollar losses in 2008, when they couldn't recover rising fuel costs. They appear to be making progress: Fuel prices in March were just 1.5 percent higher than three years ago, while fares were up 10 percent.
"In 2008, airline CEOs were on the floor in the fetal position," said Michael Boyd, an aviation expert and president of the Boyd Group. "This time, they're prepared."
Unlike in 2008, this year's fare increases have largely stuck. One big difference is that Southwest Airlines, which in 2008 typically balked at the increases (and does not charge fees for a first or second bag), has been raising its fares, too. Southwest has bumped prices up seven times since mid-December and, in a recent conference call with analysts, signaled that more increases are likely.
"I don't like fare increases for our customers, but they're certainly necessary in this soaring fuel-cost environment," said Chairman and CEO Gary Kelly.
Southwest was the lone big U.S. carrier to squeeze out a profit in the first quarter, although losses for Delta Air Lines, American Airlines, US Airways and United Continental Holdings were less than expected.
Many people expect further airfare increases because airlines still need to recover more of their fuel costs, and the current increases haven't scared away many passengers.
However, Tom Parsons of BestFares.com said yesterday that in the past six weeks, he's seen summer airfare sales break out, and he thinks that more could be coming for routes and flights that have empty seats. He recommends buying on Tuesdays or Wednesdays, when fare sales often take place, and not buying on the weekend.
He also thinks that Southwest might have particularly low fares planned around its 40th anniversary in mid-June.
An annual rise of a penny in the price of a gallon of jet fuel costs U.S. airlines $175million, and if jet fuel averaged $3 a gallon in 2011, that would add $15billion in fuel costs compared with 2010. The industry last year had a $3billion profit.
Jet-fuel prices passed $3 a gallon in late February, up 50 cents in 2011, the Energy Information Administration said. Fuel prices have since jumped to $3.30.
In 2008, jet fuel peaked at $4.16 per gallon, the agency said.
United Continental Holdings, the parent of United and Continental airlines, paid 35 percent more for fuel in the first three months of the year than it did a year earlier.
Southwest is projecting a $1.5billion "fuel headwind" this year, and American Airlines expects its fuel bill to rise $2.1billion.
