Southwest raises fares, others follow

Bob Moon Sep 4, 2007

Southwest raises fares, others follow

Bob Moon Sep 4, 2007


Kai Ryssdal: For years, Southwest Airlines has been the fair-haired boy of the aviation industry. It weathered the airline storm the past couple of years in pretty good shape, with steady profits and decent passenger loads. And it spawned a bunch of imitation low-cost carriers.

Over the holiday weekend, Southwest led the way in another area, too. Air fares went up in a lot of cities around the country. And educated guessers out there might already have already figured out that analysts are blaming the high cost of jet fuel.

Southwest, in particular, has been watching its fuel costs rise. So fares are going up on its longer flights by $10 each way, and a couple of bucks on shorter flights. And Marketplace’s Bob Moon tells us the competition is only too happy to go along for the ride.

Bob Moon: Not long ago, whenever the big airlines tried to hike ticket prices, something kept tugging those fares right back down again. In many cities, that “something” was Southwest Airlines. Its low fares would usually frustrate any attempt by rivals to make a fare increase stick.

Now, Southwest is feeling some pricing pressure of its own. And, in a variation on its advertising slogan:

Southwest Ad: You are now free to move about the country.

Southwest is essentially sending the message, “You are now free to move up your fares.”

Industry consultant Michael Boyd cites one case in point:

Michael Boyd: When Southwest raises fares in Raleigh-Durham, N.C., there’s about six other places around there where Delta can raise fares as well.

Indeed, no sooner had Southwest made its move, than American, United, Northwest and U.S. Airways all confirmed they would match it.

Boyd says Southwest had successfully hedged against higher fuel costs with contracts that locked in lower prices. But now that those are expiring, it’s having to pay as much as its rivals.

Boyd: Remember, Southwest has had the advantage of lower fuel costs, which they’ve passed on to the consumer. Now, they’ve got to take a little bit back as fuel goes up.

That doesn’t necessarily mean fares will keep rising as fuel costs do. At CRA International, airline analyst Mark Kiefer says there’s still plenty of competition from newly-emerging low-cost carriers.

Mark Kiefer: They now compete with the legacy carriers in at least 70 percent of the markets in the U.S. And as a result, they determine what the fares will be in a very real sense.

Kiefer says the low-cost rivals could even force Southwest to avoid raising prices too much.

In Los Angeles, I’m Bob Moon for Marketplace.

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