Market Overview

Large Airlines Abandon Fare Increases, Again

Large Airlines Abandon Fare Increases, Again

United Airlines (NYSE: UAL) attempted to raise airfares for the second time in two weeks last Thursday but Monday, the airline company abandoned its attempts to raise fares because of a lack of demand. Rising jet fuel prices are the cause of airlines' continued attempts to increase airfares and other types of fees.

According to The New York Times, when United Airlines raised its fares other airlines such as American Airlines and Delta Air Lines (NYSE: DAL) followed suit. Once United Airlines backed off, so did the other airlines. Although this attempt was unsuccessful, passengers can prepare for more efforts from the airlines to raise fares.

According to FareCompare, which tracks fare increases, once one airline hiked fares $4 to $10 per round trip many other airlines followed. This is the fifth fare increase attempt in 2012, most of which have been abandoned. Often, if other airlines do not follow suit in the increase of fares, the airlines will withdraw the raises.

Founder of FareCompare Rick Seaney wrote, “With so much ‘up in the air' as they say, it is pretty clear airlines will continue to try to recoup fuel increases with regular attempts at airfare hikes this year – and it will be up to passengers to tell the carriers exactly when the price of a middle seat on a packed plane has finally stepped over the line.”

Along with increases in fare prices through the year, the Bureau of Transportation Statistics stated that the domestic airlines collected more than $815 million in baggage fees during the months of January, February and March of 2012, compared to just $792 million in the fourth quarter of 2011. Despite the increase in baggage fees, airline traffic experienced a 4 percent decrease in the same period.

One reason for the increases in fares is the spike in jet fuel that the US has experienced so far in 2012. The price of jet fuel has jumped 7 percent this year already. In 2011, jet fuel prices increased by more than 30 percent for airlines in comparison to the year before. Seaney notes that if oil prices remain high throughout summer he expects that fare prices will be raised even more.

Rising oil prices and a weak economic outlook have left airlines looking for the right combination of price and supply. Many airlines have experienced decreases in trans-Atlantic capacity. Delta Airlines suffered a 7.6 percent decrease in trans-Atlantic customers specifically. With increasing fuel prices but decreasing demand, airlines may reduce the supply of seats available.

Rick Sweaney gives some tips in order to find rare summer airfare deals, including looking for airfare sales that begin on Monday, unlike the traditional airfare sales that begin on Tuesday. Another is to look for atypical sales offered by airlines, such as Virgin Airlines' offering of eight-hour only deals recently. Another piece of advice he gives is to use sites that compare fares from different airlines.

Despite the increased fares throughout the years, travelers can now feel safer with airlines handling their bags. Due to advances in technology, airlines have experienced the lowest number of mishandled bags since 2005.

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