Airlines kick off 2008 with new fare increases, blaming fuel as culprit

[Bulldog]

By Adam Schreck, THE ASSOCIATED PRESS

NEW YORK - As if on cue, airlines including Air Canada are responding to oil's latest surge by pushing ticket prices even higher.

Roundtrip domestic fares began rising US$10 to $20 late Thursday, as crude futures crossed the once-unthinkable $100-a-barrel mark. Several major carriers increased prices, with each citing higher fuel costs as the reason.

The widespread increases follow nearly two dozen attempted systemwide fare hikes in 2007, or about double the number during the previous year, according to data compiled by FareCompare.com, which tracks airfare changes.
 

Passengers hoping for relief in the new year are likely to be disappointed.

"If oil stays at $100 a barrel, or if it creeps up even higher, I don't see how this is going to stop," FareCompare chief executive Rick Seaney said in an interview. "Airlines are going to be scrapping to keep their heads above water."

United Airlines, the second-largest U.S. carrier, led with the biggest round of increases Thursday night.

Tickets on short flights will cost $5 more one-way, while trips of more than 2,400 kilometres - such as Chicago to Las Vegas or Boston to Denver - will cost travellers $10 more one-way, spokeswoman Robin Urbanski said.

Delta Air Lines Inc. and AMR Corp.'s American Airlines followed United's lead, matching the increase Friday.

Days before Christmas, UAL Corp.'s United doubled a $5 fuel surcharge it added a month earlier, effectively raising round-trip fares by $10. Urbanski said that surcharge remains in place in markets where it was matched by competitors.

Urbanski acknowledged fares in and out of some cities are higher than they used to be, but "are still relatively lower than a few years ago given that fuel is our highest expense."

Air Canada (TSX:AC.A) raised prices on tickets between the U.S. and Canada by two per cent, according to spokesman John Reber. That means a ticket booked on Travelocity.com to fly between New York and Vancouver this Sunday and return Monday would cost about $30 extra.

Separately, AirTran Holdings Inc. doubled its one-way fuel surcharge to $10, spokeswoman Judy Graham-Weaver said. FareCompare data indicated Midwest Airlines has also added a surcharge this week, raising round-trip ticket prices by $10, but a spokesman for the carrier declined to comment on the matter.

"We all are facing ever increasing fuel costs and trying to keep up," AirTran's Graham-Weaver said.

The increases come as crude prices hover near all-time highs. On Friday, light, sweet crude for February delivery fell $1.27 to $97.91 to settle a barrel on the New York Mercantile Exchange.

The Air Transport Association said higher fuel costs will likely limit U.S. airlines' profits to between $3.5 billion and $4.5 billion this year, down from an estimate of $5 billion last year.

"Rising oil prices have a disproportionately negative impact on U.S. carriers, since oil is traded in dollars," ATA chief economist John Heimlich wrote in an e-mail. "Foreign carriers generally have more robust hedge positions than U.S. carriers, leaving them less exposed to the soaring oil prices."

JPMorgan airline analyst Jamie Baker said the latest increases aren't much of a surprise. He estimates that every $10 increase in the price of a barrel of oil means airlines need to generate an additional $18 in revenue from each passenger they fly.

From the beginning to the end of 2007, crude prices surged by nearly $35 a barrel.

In response, carriers tried to raise fares 23 times last year, according to FareCompare. Of those increases, 17 were matched by competitors and remained in place for more than a week.

Fierce competition from low-cost carriers means the increases don't often stick in popular markets such as Orlando, Fla. or Washington, D.C. But travellers in smaller cities such as Little Rock, Ark., or those with little competition, such as Salt Lake City and Cincinnati, end up paying the most as prices increase, Seaney said.

"The bottom line for consumers is this: They'd better be shopping earlier than they used to because there's not going to be any last minute deals left," Seaney said. "The airlines know exactly when travelers want to travel, and they're going to charge a premium for that."

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