Airlines hike fares - again

By Aaron Smith, staff writer


NEW YORK (CNNMoney) -- Airlines are hiking their fares at the fastest pace in two years, driven by high fuel prices and enticed by strong consumer appetite.

And travelers should brace themselves for more hikes, because there's no reason for airlines to stop now, according to industry experts.

"We are still on the back end of a recession and people are still watching their wallets," said Rick Seaney, chief executive of Farecompare.com. "[But] the environment for airlines is still pretty good. Supply is not rising dramatically and demand is picking up. I think airlines will continue to try hikes until people stop booking tickets."

Major U.S. airlines increased fares for domestic flights by $10 this weekend -- the fourth air fare hike so far this year, according to Seaney. This means that domestic air fares are about 12% higher, on average, than the same period last year, said Seaney.

In fact, the number of air fare increases this year has already outpaced 2010, which had a total of three hikes. Seaney said this year's pace is on par with 2007, when airlines posted a total of 17 hikes, and 2008, which had 14 increases.

Raising air fares is a delicate business, because the higher prices don't always stick with consumers. The way it works is that one airline will raise fares, and its competitors will watch closely to see if consumers continue to buy. If demand is undeterred, rival airlines will raise their fares, as well.

Last weekend, Southwest Airlines (LUV, Fortune 500) was the first out of the gate, and then the others followed.

"They have to walk a razor blade's edge," he said. "If they raise fares too high, people stop buying and then they have to ratchet it back."

Airlines need to charge more to cover rising fuel prices. And this problem is likely to persist, given the regime-threatening turmoil in the North Africa and the Middle East and the rising price of oil. The cost of jet fuel was also a factor in 2008, when prices hit record highs and airlines added "fuel surcharges" as a subliminal way of raising fares.

But now, consumers also face a plethora of ancillary fees for services that used to be included in the price of ticket, such as add-on fees for extra luggage, curb-side check-in, food, non-alcoholic drinks and reservation changes, to name a few.

The pace of air fare hikes so far this year, combined with higher fuel prices and a tentative recovery in consumer demand, suggests that travelers will continue to face higher prices, as airlines balance the value of their product against consumer confidence.

"The two go hand-in-hand: increased economic activity is driving demand which is pulling up fuel costs but enables airlines to raise ticket prices," said Raymond Neidl, independent airline consultant. "Unless instability in the Middle East curtails the economic recovery, we will see more ticket price increases going into the spring as demand gets even stronger." To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 16,805.41 127.51 0.76%
Nasdaq 4,483.72 30.92 0.69%
S&P 500 1,964.58 13.76 0.71%
Treasuries 2.27 -0.00 -0.09%
Data as of 11:26pm ET
Company Price Change % Change
Ford Motor Co 13.78 -0.62 -4.31%
Microsoft Corp 46.13 1.11 2.47%
Apple Inc 105.22 0.39 0.37%
Bank of America Corp... 16.72 0.12 0.72%
Yahoo! Inc 43.50 0.90 2.11%
Data as of Oct 24

Sections

New York headlines took a straight forward and direct approach with NYC's Ebola news. More

The midterm elections are around the corner, and the economy remains a top concern. With unemployment down and inflation low, why do people still feel the economy stinks? More

Shares of Facebook recently topped $80. They've more than quadrupled from their post-IPO lows of two years ago. Can Mark Zuckerberg keep the momentum in mobile going? More

Host a furniture market. Here's how small town High Point, N.C. rakes in this much money -- twice a year. More

If you're looking to fly this holiday season, the clock's ticking to get the best prices. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.