Why are airline fares going up while fuel prices are dropping?

Despite dropping fuel prices, airfares continue rise.  Something doesn't see right.  Airlines appear to have no incentive to lower fares.  Call it lack of competition perhaps.

From USA Today online:



U.S. airlines are saving tens of millions of dollars every week because of lower prices for jet fuel, their largest expense. So why don't they share some of the savings with passengers?
Simply put: Airlines have no compelling reason to offer any breaks. Planes are full. Investors want a payout. And new planes are on order.

In fact, fares are going higher. And those bag fees that airlines instituted in 2008 when fuel prices spiked aren't going away either.

In the 12 months ended in September, U.S. airlines saved $1.6 billion on jet fuel. That helped them post a 5.7% profit margin in the first three quarters of this year, robust for the industry but lagging behind the 10% average for the Standard & Poor's 500.

In the past six years, airlines have done a great job of adjusting the number of flights to fall just short of demand. As a result, those who want to fly will pay a premium to do so. Airlines are selling a record 85.1% of their domestic seats. Thanks to several mega-mergers, four big airlines control the vast majority of flights, leaving very little room for another airline to undercut fares.


Read more by clicking on this link.

Your bad luck is the airlines good fortune

From the Wall Street Journal

"Unforgiving ticket penalties are unique to the airline industry; other industries typically either allow changes or cancellations, or allow buyers to swap or resell tickets they can’t use. Theaters and sports teams sell non-refundable tickets, but buyers can give them to friends or sell them. Hotels, restaurants and other service providers may charge fees for no-shows, but typically give customers time to cancel, imposing penalties only within 24 hours, or perhaps after 4 p.m. on the day of arrival."

Not all airlines rely on cancellation fees. How can that be? Isn't the lure of more fee revenue too irresistible for the airlines to ignore? Aren't fees so important that they have lured more travelers to the airlines?

But wait why is Southwest Airlines the most successful air carrier in operation today?

"Steve Landes, who runs a Florida organization of travelers who commute by air between home and business, says many frequent travelers are switching to Southwest Airlines Co., which allows ticket changes without a penalty. “That $150 charge is a killer, and people avoid it. Airlines may think they are making money on it, but they must be losing money. They are sending their customers away,” Mr. Landes says.

A Southwest spokeswoman says the carrier hasn’t had to rely on penalties to manage overbooking because it takes historical patterns of customer cancellations and changes into account. She says the airlines believes it draws more customers by making it easier to change travel plans if necessary."

Recently we booked four airline tickets from Chicago to Cleveland over the Labor Day weekend. When searching fares four airlines, United, US, American and Southwest all priced their fares within $1.00 of each other. However, when you factored in the checked baggage fees charged by United, American and US it really meant that their fares were actually higher over all than Southwest.

Southwest, who has stubbornly not gone the baggage fee business model side, won our business yet again.

Why is Southwest the most successful air carrier flying today?

Read more from the Wall Street Journal article about airline cancellation fees by clicking the above link.

Well a difference in opinion about airline fees United adds $800 in fees to a $560 trip

We caught this USA Today article that reports a survey a majority of passengers are willing to accept cheap fares with a la cart fees. More than half of US air travelers now prefer buying the cheapest available ticket, then paying fees for "extras" such as food and drink, preferred seating and checking bags.

Perhaps something is skewed in the survey methodology. Just ask Greg Dean who has sworn off United Airlines because the amount of a la cart fees for his Austin to Sacramento flights.
From the Consumerist: We have a feeling this is going to happen with increasing frequency as airlines continue to bleed once-loyal customers for extra revenue: Greg Dean, the cartoonist behind Real Life Comics, has had enough of United gouging him.

Delta adds $15 Check Baggage Fee

Delta Air Lines Inc., the world's biggest carrier, said Wednesday it will impose a $15 fee to check a first bag for customers flying within the U.S.

The carrier also said it is cutting certain other fees as it aligns its policies with those of Northwest Airlines, which it acquired last week.

Link from the International Herald Tribune

Will fares go so high that only the rich can fly?

This USA article discusses the sharp rise in airfare this year. The law of unintended consequences rears its ugly head with the fact that if airfares continue to rise, only the rich will be able to afford them. With less passengers flying, the airlines will not be able to cover their costs, despite the increased fare. With less revenue...less passengers paying higher fares do not necessarily translate into more revenue...the airlines will lose even more money. Read how the traditionally higher paying fare customers, the business travelers, are adapting to the higher fares by cutting back on their travel. By the way, how is it that Southwest, now the largest domestic carrier in the United States, able to weather this temporary higher fuel costs storm and remain profitable? Is it better management? Better business model? Are the nickel and dime fees now the vogue for the legacy airlines driving more passengers to Southwest instead of raising revenue for themselves? Remember Southwest has determinately abstained from adding fees to its fares. Instead they have used their "fees don't fly with us" policy as their new marketing slogan with great success. From the Southwest website, " We despise fees as much as the other airlines seem to love them. So we'll just keep taking care of you, rather than charging fees for the stuff that should come with your fare in the first place. We believe in not asking you to pull out your wallet every few minutes."