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.

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.