| Airfare Prices Bound To Go Up |
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By Richard Thompson
Scripps Howard News Service In the airline industry, it's easy to fill up a plane with people. Offer attractive (read: low) fares, and the seats tend to fill. The trick is to fill up a plane with people and make money. Over the past couple weeks, airlines have been trying to figure out ways to pull off the trick. It hasn't been easy. So far, two well-publicized attempts led by Continental and American airlines to raise leisure fares -- the first since September 11 deepened the U.S. travel slump -- have failed. Since price increases tend to fail if one airline doesn't follow suit, the disagreement seems to center on the best way to raise fares. And if you are planning to travel this summer, you can bet a bag of peanuts that how the airlines resolve this will affect your ticket price. As attractive as low fares are for consumers, they fail to pay the bills for airlines, which make money by charging business travelers higher fares. Business travel, however, has slumped for the past year as the economy entered the recession. The hijackings on September 11 only made things worse as companies were forced to re-examine their expenditures and practices. One lesson they learned was they were paying too much for airfare. Even if the economy improves, some travel experts don't believe business travel will return to its former levels. That leaves the airlines to make up the difference by focusing on price-sensitive leisure travelers. An extra $10 -- be it in taxes or a base fare increase -- might decide whether a leisure traveler drives from Memphis to Little Rock or Nashville just to catch a cheaper Southwest Airlines flight or actually shuns flying altogether if the driving distance isn't that great, travel experts say. So it behooves airlines to offer discounts. On its April 18 earnings call with analysts, Northwest Airlines executives said industry fares were on sale three out of every four days from October to March. In March, industry fares were on sale every day, executives said. Last week the Air Transport Association said average domestic airfares declined 13.2 percent in March compared to a year ago. The average fare for a 1,000-mile domestic trip fell to $124.93, according to the ATA, the industry trade group that represents major airlines. "Airlines are focusing on recovering their pre-September 11 traffic while continuing to hold prices at bargain levels," said ATA chief economist David Swierenga. But how long can they maintain that focus? Several airlines declined to comment on their pricing, except to say they try to be competitive. Airlines have pointed toward low airfares as a reason behind the estimated $2.5 billion in losses suffered in the first quarter of this year. Northwest, the dominant carrier at Memphis. International Airport, lost $171 million in the first quarter, but its $2.6 billion in cash places it in a better position than many of its counterparts. "Airlines have no choice but to raise their prices," said Gary Sheridan, owner of TravelVacations, a travel agency in Memphis. Darryl Jenkins, director of the Aviation Institute at George Washington University's Virginia campus, agrees. If they don't raise prices, "you continue what you are doing. You continue to lose massively. That's kind of the long and short of it," said Jenkins, who adds the airlines' current predicament mirrors what they endured in the early 1990s. Back then, fares were so low airlines even lost money on full flights. To be sure, determining airfares is a complex science and one affected by competition from law-fare airlines. Traffic mix and supply and demand also affect airfares. Northwest executives have said there is money to be made by increasing depressed fares, or fares below structural levels. Examples of depressed fares are deeply discounted promotional fares, tour operator fares or "opaque" fares associated with discount web sites like Hotwire.com and Priceline.com. So here's some advice for summer travelers from travel experts: - "They better buy now," said Tom Parsons, fare tracker for Bestfares.com. "I do expect more sales, but I don't expect them to be as aggressive."
- And the longer you wait to book a flight, the less likely you are to get a good fare because "only so many seats are sold at the same price."
- And consider using a travel agent.
- If you buy a ticket now, it may go on sale later, which means you might get a credit on the lower fare. You may not find out that information from the airline or a web site, but a travel agent would know. And that might be worth paying the agent's transaction fee.
(Contact Richard Thompson of The Commercial Appeal in Memphis, Tennessee, at www.gomemphis.com.)
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