The US airline industry has gone back to a time-honoured but hardly desirable old tradition: "the tug of war" between fares and oil prices, in the words of Deutsche Bank analyst Susan Donofrio.
The tug of war is stuck in the trench lines of the long stalemate that preceded this downturn: oil prices are now rising but fares are not moving at all. An attempt to set off a round of fare increases fizzled out in mid-April after Continental tried to add $20 to a widely used leisure fare. Northwest refused to match it, and Continental chief executive Gordon Bethune told reporters "the fare increase is dead".
Yet the mere fact that the airlines see enough demand to push up fares is an encouraging sign, says independent analyst Ray Neidl, even if the first target is fares that are at best "junk", as he puts it. Neidl says: "It's a good sign that they're trying."
After a gratifying slide to a world average jet kerosene spot price of below 53¢/US gal by the end of 2001 - down from 77¢ at mid-year - carriers saw a sharp hike to 62¢ by March as Iraq's oil boycott and the escalating Israeli/Palestinian conflict drove prices higher. Oil prices are expected to rise again, and some carriers have already responded with fuel surcharges.
Source: Airline Business
