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Market Overview

Major Airlines Respond To Fears Of Rising Ticket Prices

Major Airlines Respond To Fears Of Rising Ticket Prices

Leading airlines American Airlines Group Inc. (NASDAQ: AAL) and Southwest Airlines Co. (NYSE: LUV) recently reported second-quarter earnings.

“It was a challenging quarter,” Southwest Airlines CEO Gary Kelly said during the earnings call. Based on the collective earnings data, this response is unanimous, with a specific common demoninator to blame.

What Happened

As of this spring, jet fuel prices were up nearly 60 percent. In spite of these challenges, some airlines have developed new incentives and made promises in an effort to achieve strong customer retention.

American Airlines

American Airlines is taking action to promote sales and growth in the wake of the $2-billion increase in fuel prices.

The company announced plans to remove carry-on bag restrictions, encouraging more competition for people choosing to fly basic economy.

"Basic economy is working well in the markets where we offer it, and we continue to see more than 60 percent of customers buy up to main cabin when offered a choice," said American Airlines President Robert Isom. "Removing the bag restriction will make basic economy more competitive, allowing us to offer this low-fare product to more customers.”

Southwest Airlines

Southwest’s total revenues increased 0.2 percent to $5.7 billion, according to the earnings report.

“We expect higher unit costs as we move into second half 2018, due largely to shifting spending from first half 2018. With the completion of major revenue initiatives over the last several years, we will refocus our efforts to control costs and drive efficiency, especially in light of higher fuel prices,” CEO Gary Kelly said in the press release.

Despite a 12-percent rise in fuel prices, American has refuted concerns of increasing ticket prices, flight change fees and bag fees, as well as the potential for assigned seating.

“We didn’t sock it to our customers,” Kelly said on the earnings conference call. “We are America’s low fare leader.”

What’s Next

After numerous airlines revealed lower-than-expected earnings and the effect of fuel costs on revenue, it remains to be seen whether frequent flyers will begin to notice changes in prices and flight availability.

Related Links:

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