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The Honolulu Advertiser
Posted on: Saturday, July 29, 2006

Higher airline fares expected to take hold

By Harry R. Weber
Associated Press

The major passenger airlines were loath to raise fares during five years of heavy losses because they knew their discount rivals would undercut them. But the big carriers have steadily raised fares recently.

ASSOCIATED PRESS ARCHIVE PHOTO | March 2006

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ATLANTA During five years of heavy losses, major U.S. airlines were reluctant to raise fares, knowing that their discount rivals would undercut them.

A few months ago, that timidity melted away and airlines big and small have steadily raised fares that have begun to stick. The result: profits for some of them despite persistently high fuel prices that should continue because of strong demand for air travel.

"I see no abatement," Calyon Securities airline analyst Ray Neidl said. He added that with planes mostly full, "That's showing there's more demand than supply."

According to Harrell Associates, which tracks ticket prices on 280 routes for seven large airlines, as of Monday business fares were up 18 percent year-over-year, and leisure fares were up 9 percent.

Whether they will fly less because of it or not, passengers have plenty to say about the rising airfares.

At Hartsfield-Jackson Atlanta International Airport, the world's busiest airport in terms of passengers, 43-year-old registered nurse Rob Foster of Thomaston, Ga., said the airlines should make things easier on consumers.

"It's really bad because if you're going on vacation and really want to go, you're going to pay no matter what," Foster said while heading to Las Vegas yesterday. "They've got you just where they want you."

Mike Wagar, a 29-year-old computer programmer from Buffalo, N.Y., said he only travels for business because he can't afford to travel for pleasure.

"I think that when prices go up, it makes it harder on everyone," he said.

But Brian Kelly, 54, a truck driver from Peoria, Ill., in Atlanta to visit his parents, said he doesn't begrudge the airlines for raising fares.

"I think it's OK because in America we're here to do business," Kelly said. "The only ones I blame this on are the oil companies because they're the ones who are gouging us."

Terry Trippler, an industry observer in Minneapolis, said he believes for the most part air travelers will dig deeper to fly rather than not fly at all.

"They can be as ticked off as they want to be, but they're still buying the tickets," Trippler said.

Because of that, Trippler said that but for the occasional discount or sale, people shouldn't expect to see any industrywide reduction in fares for the immediate future even if fuel prices come down.

"I think they've seen that they can fill their planes without having to give away their seats," Trippler said. "They're slow learners, but they've gotten there."

The result has been a tide turn for the airlines' balance sheets, with several of the majors posting profits after years of losses. The discount carriers have been able to widen their profits.

Elk Grove Village, Ill.-based UAL Corp., parent of United Airlines, said it expected to post a second-quarter profit of $119 million, its first quarterly profit in six years. It cited higher fares and packed planes.

Fort Worth, Texas-based AMR Corp., parent of the nation's biggest carrier, American Airlines, posted a sharply higher profit for the second quarter, also citing full airplanes and higher fares at the start of the peak summer travel season. It was only AMR's second profitable quarter excluding those helped by one-time items in the past five years.

Discounters Southwest Airlines Co. of Dallas and AirTran Holdings Inc.'s AirTran Airways of Orlando, Fla., also reported wider profits in the second quarter, with Southwest's earnings more than doubling and AirTran's nearly tripling. Higher fares helped both.

Atlanta-based Delta Air Lines Inc., which has been operating under bankruptcy protection since September 2005, plans to release its second-quarter results on Aug. 9.

Standard & Poor's analyst Philip Baggaley said that even the discount airlines are unlikely to give up on the fare increases because they are under pressure from high fuel prices, too.

"I don't see them slipping back unless the economy slows more rapidly than expected," Baggaley said.