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Airfares — up and up as carriers hang together

Alisa Roth Apr 5, 2011

Airfares — up and up as carriers hang together

Alisa Roth Apr 5, 2011

Bob Moon: The Federal Aviation Administration made it official this afternoon. It’s ordering airlines to take a close look for hairline cracks in their most heavily used, older-model Boeing 737s. This following the hole that opened up in the fuselage of a Southwest flight on Friday. The FAA says the complicated inspections must be completed within the next five days. Southwest says it’s now wrapped up its voluntary inspections.

Some airlines tried to push through a new round of price increases yesterday. But Southwest decided not to go along with the rest of the pack. The free market keeps fare hikes in line.
And it seems for the moment, further increases have been dodged. But for how long?

Marketplace’s Alisa Roth has more.

Alisa Roth: If you’re buying a plane ticket this week, you should thank Southwest that the fare isn’t higher. When most major U.S. airlines — including United, Delta, and US Airways — tried to raise fares last weekend, it was Southwest’s refusal that caused all the others to draw back.

Mike Boyd is an airline industry analyst. He says that’s how it works.

Mike Boyd: One airline tries to raise fares $5 across the board. If others, you know, pick up and do it, then it sticks. If nobody does, it goes back again.

But whether you noticed or not, airlines have been raising prices steadily for the last couple of months. Boyd says fares are about 9 percent higher than they were a year ago. And he thinks they’ll be about 9 percent higher again a year from now, because fuel costs have gotten prohibitive for the airlines.

Boyd: There’s not a single airplane flying in any airline fleet that was designed with $30-a-barrel oil in mind, let alone $108 a barrel. So, they’re going to have to raise fares, they’re going to have to raise the cost of flying or they’re not going to be in business.

There are different ways to do that: raising fares is one. Charging more for extras is another.

George Hamlin is an airline industry analyst in Virginia. He says if things get bad enough, the airlines will just cut capacity again. Either by flying smaller planes or by cutting routes altogether.

George Hamlin: What it comes down to is that consumers will simply see fewer seats to buy and then that’s pretty simple supply-demand; if there are fewer seats, the price is likely to go up.

And, unfortunately for travelers, even if the price of oil comes down again, Hamlin says it’s unlikely fares will drop. He says the best you might hope for are some good sales.

I’m Alisa Roth for Marketplace.

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