US airlines are continuing to push consumers to accept new fare increases as the industry is poised to announce an overall first quarter loss over the next three weeks.
Delta Air Lines on 17 April raised one-way prices by $5 to $10 in certain fare categories in a move widely interpreted as attempting to provoke a fourth successful broad-based fare increase since 1 January.
But no competitors matched Delta's increase within the first 23h, and it appeared to some analysts that the fare hike would be rescinded. However, United Airlines finally matched Delta's fare hike attempt at 13:00, keeping the attempt alive for at least another day.
Already, two of the six fare hike attempts initiated by domestic carriers have failed so far this year, says Rick Seaney, co-founder of FareCompare. The attempts fail if the initiating airline's competitors do not match the fare increase, or if they cause a sudden drop in bookings.
The broad-based fare increases are aimed at business travellers, focusing on the zero to seven-day advance purchases, according to a research note earlier today by Jamie Baker, the senior airline analyst for JP Morgan.
The industry's ability to increase fares is receiving special scrutiny this year. Consumers accepted nine of 22 fare hike attempts on domestic routes in 2011. Those fare increases were instrumental in the overall $2 billion profit posted by US airlines last year, especially as the fuel-year average jet fuel price rose to a record high of $3 per gallon.
Fuel prices have increased even more in the first four months of 2012. On 16 April, the benchmark Gulf Coast jet fuel price was $3.20 per gallon, and the average year-to-date is $3.19 per gallon, according to Airlines for America advocacy group.
The additional fuel cost spike has forced Southwest to predict a rare quarterly loss, which the carrier scheduled to be reported on 19 April. Analysts will be closely watching if Delta's recent attempt is successful. According to Seaney, every $10 fare hike leads to a roughly one to 1.5 percentage point in passenger revenue per available seat mile (PRASM).
JP Morgan's analytical team is confident that enough fare increase attempts will be successful this year for US airlines to remain profitable.
"We remain highly confident that the industry can offset virtually any sustained increase in fuel price related to underlying economic conditions," Baker wrote.
Source: Air Transport Intelligence news