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Airfare war not so bad for airlines

Marketplace Staff Mar 20, 2009
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Airfare war not so bad for airlines

Marketplace Staff Mar 20, 2009
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KAI RYSSDAL: Having spent 12 of the past 36 hours sitting on airplanes, I can tell you that this recession is not keeping people from flying. There wasn’t an empty seat to be had on any of the flights I was on. Fears of what might happen, though, as travelers start thinking about staying home in a recession has sparked an airline industry price war. Normally that would lead to lower profits no matter what the industry. But Tamara Keith reports those super-low fares aren’t beating up airlines as much as you might think.


TAMARA KEITH: Southwest Airlines blasted off this e-mail early Thursday morning: “Huge Sale! Tiny Prices!” They lowered their summer fares to as little as $49 one way to lots of U.S. cities. And most other airlines are busy matching them.

RICK SEANEY: It’s just some of the craziest prices I’ve ever seen.

Rick Seaney is CEO of FareCompare.com. He says summer is typically the most expensive time to fly. Not this year.

SEANEY: This is the kind of pricing that’s going to get a lot of people off their couches and onto their computers and booking tickets. It’s unbelievable pricing.

Getting people off their couches is exactly what the airlines need to do. According to the Air Transport Association, passenger and cargo demand has dropped sharply thanks to the recession. John Heimlich is the association’s chief economist. He says this comes just as the airlines were finally catching their breath after last year’s devastatingly high fuel prices.

JOHN HEIMLICH: Obviously, we can’t have our cake and eat it too because as soon as fuel prices drop, revenue falls off a cliff.

High fuel prices had already forced a huge cutback in flights so the airline industry was well-positioned for the recession. Now that fuel is cheaper, Heimlich says airlines can afford to cut fares to fill remaining seats.

HEIMLICH: If we’d seen this level of demand with last year’s fuel prices, forget it. You’d be seeing cuts in capacity that would be sharply more dramatic than what you’re seeing right now.

So if you can afford it, it’s a great time to fly.

In Washington, I’m Tamara Keith for Marketplace.

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