Fuel prices spur another holiday hike in airline fares

Email|Print| Text size + By Robert Weisman
Globe Staff / November 9, 2007

Squeezed by escalating fuel prices, airlines are once again boosting fares for the holiday season - an average of 10 percent higher than they did during last year's holidays - passing some of the pain from their higher costs to customers.

Yesterday, soon after UAL Corp.'s chief financial officer told investors its United Airlines unit may have to ground planes if jet fuel prices push too high, the carrier became the first big airline this year to tack a $5 one-way surcharge onto most of its domestic flights to offset its fuel costs. Other airlines are expected to follow with their own surcharges.

But even before United's surcharge, most major passenger carriers, including AMR Corp.'s American Airlines and Delta Air Lines Inc., already had boosted fares for flights during the weeks between the Thanksgiving and New Year's holidays, the busiest travel season of the year. Fares out of Boston' s Logan International Airport are an average of 18 percent above Labor Day fares.

The higher fares will pinch travel ers at a time when they are already being hurt by rising energy costs, with prices for everything from gasoline to heating fuel also climbing. So far, however, there have been few signs that large numbers of people are abandoning or altering their holiday travel plans because of the steeper airline costs.

That could be because at the same time airlines are increasing fares, they have also over the past two weeks been promoting sales for off-peak days around Thanksgiving, Christmas, and New Year's.

"Travelers are shell-shocked at the moment," said Rick Seaney, chief executive of the air travel website in Dallas. "If you're flexible, you can get some good deals. If you're not flexible, you're going to be paying anywhere from $45 to $60 more for a round-trip flight than you did around Labor Day two months ago."

The "holiday premium" for the year's busiest travel days -the Wednesday before and the Sunday after Thanksgiving -historically has been anywhere from 50 percent to 150 percent higher than fares on off-peak days, according to FareCompare. This year, travelers nationally are paying an average of $50 above that for a round-trip flight.

Travelers have had to swallow hard. "Until they build a train that goes to Italy from here, I don't see any alternative," said Brad Reichard, principal at Boston marketing firm Focus Communications who frequently travels for both business and personal reasons. "I love the train, but who has eight hours to sit on a train to Washington?"

For those who choose to fly, an advance-purchase round-trip ticket to Chicago on JetBlue Airways Corp. is $198, $40 higher than on Aug. 31, while an advance-purchase round-trip ticket to Dallas on United is $580, $86 higher.

Still, industry watchers say today's fares are lower than those in 2000 when adjusted for inflation, even with recent increases.

Driving the fare hikes are oil prices approaching the symbolic milestone of $100 a barrel. Crude oil for December deliveries closed at $95.46 a barrel yesterday in trading on the New York Mercantile Exchange. A $1-a-barrel increase adds about $470 million a year to the cost of the US airline industry, according to the Air Transport Association, an industry trade group in Washington.

"Oil prices have added billions and billions of dollars to the airlines' cost structure," said David A. Castelveter, the association's vice president. "So the airlines have to be very disciplined about reducing their fuel- and nonfuel-related costs."

Big airlines such as Continental, Delta, United, and US Airways have emerged from bankruptcy over the past few years and taken steps to restore their profitability. Among the approaches have been aggressive "hedging" - buying fuel in volume at set prices - renegotiating work rules so pilots and flight attendants work longer hours, and reducing the number of flights so planes carry more passengers. As a result, fare increases may be the last remaining way to counter the runup in fuel prices.

"There are fewer empty seats and demand is strong," said Daniel M. Kasper, managing director of the LECG LLC, an economics and financial consulting firm in Cambridge. "So they're running at record load factors, which means they're operating at very close to full capacity. When you're running at full capacity, you raise prices."

But fares can go only so high before airlines have to look at other ways to cope with rising fuel costs, such as cutting capacity as United Airlines is threatening to do.

The traditional airlines have tried repeatedly to raise fares over the past six years but have found themselves undercut by discount carriers such as Southwest Airlines, JetBlue, and AirTran Holdings Inc. This time, with discounters also feeling pressure from jet fuel increases, higher fares are more likely to stick, analysts said.

That would leave the burden on the passengers. How much they are willing to pay will be tested during this holiday season.

"The consumer is being hit by everything," said Nigel Gault, chief US economist for Global Insight, a Waltham research firm. "They're hit by rising gasoline prices, rising heating oil prices, declining home prices, and rising adjustable mortgages. So if travel for you is discretionary, that may be a place where you cut back. It may be a matter of which relatives you want to see and how far you want to go."

Robert Weisman can be reached at

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