US airlines raise fares
Published: 26 Jun 2009
US airlines raised fares for a second time in two weeks, a strong signal that ticket prices may be nearing a bottom, according to FareCompare.com.
Delta Air Lines raised rates by between $10 and $20 for round-trip flights, FareCompare data showed, and Continental Airlines also raised rates. The carriers joined American Airlines and United Airlines, which both boosted fares for their US routes.
According to IATA, international passenger demand weakened from the -3.1% recorded in April to -9.3% in May. But both of the past two months have been slightly stronger than the 11.1% decline reached in March, even after adjusting for the distortions caused by the timing of Easter. This indicates that a floor may now have been reached. However, the capacity adjustment of -5.0% in May did not keep pace with the fall in demand during the same month. Moreover, although the impact of the recession appears to be stabilizing, strong headwinds from debt and low asset prices are expected to weaken and delay any significant recovery.
“We may have hit bottom, but we are a long way from recovery,” said Giovanni Bisignani, IATA’s Director General and CEO. “Capacity is not aligned with demand. Passenger load factors dropped 3.3 percentage points over the last 12 months. The impact on revenue is dramatic. After a 20% fall in international passenger revenue in the first quarter, we estimate that the drop accelerated to as much as -30% in May. This crisis is the worst we have ever seen,” said Bisignani.
According to a media report, it’s not just price increases that have pushed fares higher. As demand has rebounded for leisure tickets this summer, cheap seats have been bought out of airline inventory. Airlines offer many different prices for seats on the same flights, and as tickets get bought or departure gets closer, availability of the lowest prices is closed out—if consumers are buying.
The increases are an attempt by airlines to lift prices ahead of a key summer season, typically a strong period for the airline industry, FareCompare.com chief executive Rick Seaney said, according to Reuters.
“Until about three or four weeks ago, you saw almost continuous airfare sales,” said Seaney. “Now the sales we do see are Tuesday, Wednesday, Saturday sales, off-peak sales instead of discount.”
As late as Memorial Day, the cheapest round-trip fare offered between New York and Honolulu was $353, according to FareCompare, which offers historical pricing information. But Wednesday the lowest price offered in that market had risen to $758. Washington-San Francisco was offered as low as $138 round-trip in May, but now the cheapest price offered in that market is $239, according to FareCompare.
Daniel Garton, executive vice president of marketing at AMR Corp.’s American Airlines, thinks many consumers postponed vacation-buying decisions earlier this year because of economic concerns, but now are feeling more confident about economic improvement, or just have found the urge to travel too strong to ignore.
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tromba said on 28 Jun 09:
That is possibly an optimistic interpretation of the market to say that an increase in air fares is an indication we are nearing the bottom of a downhill slide. Another interpretation which is pessimistic but likely realistic is that the airlines have cut as much as can be cut and they are now struggling to remain operational.
Only two weeks ago, Bloomberg News reported that American Airlines will eliminate 1,600 jobs and Delta Air Lines was planning more cuts in payroll and more reductions in seating capacity. Further, US Airways announced it will ask 400 flight attendants to take leaves or it will resort to layoffs.
The cutbacks in flights and jobs announced yesterday may herald similar steps by other U.S. airlines. Revenue is vanishing as they trim fares to lure customers who are flying less because of the recession, especially in premium-class cabins on overseas routes, Bloomberg reported.
With international travel down “significantly,” Delta said it will cut overseas capacity by an additional five percent from what it announced three months ago, for a 15 percent total reduction on those routes, Bloomberg said. Miles flown by paying passengers, on overseas routes dropped 10 percent at Delta through May and 8.7 percent at American.
What is being done to encourage more foreign visitors to the United States? Well, currently working its way through Congress is legislation called the "Travel Promotion Act of 2009". This new law, which looks like it is going to pass, would establish a public/private marketing agency that would be funded by a US10 fee to be paid by international visitors.
Now, how smart is that? Foreigners are staying away from the US because of bureaucratic hassles and rude border guards, so let's just charge them an additional ten bucks for the privilege.
corwinb said on 26 Jun 09:
wow