American, Northwest raise fares

Big airlines join others coping with soaring cost of aviation fuel

August 13, 2005|By BLOOMBERG NEWS

DALLAS - American and Northwest Airlines raised their U.S. fares yesterday to help cope with record jet-fuel prices, after increases Thursday by four other carriers.

American increased prices $5 each way on most routes, a spokesman said. Northwest implemented a similar increase, as did low-cost carrier JetBlue Airways Corp. on some routes. Delta, United, Continental and US Airways raised fares a day earlier.

JetBlue raised fares $5 each way late Thursday on routes between the Northeast and Florida and on seven-day advance purchase fares on cross-country routes. America West Airlines matched a Delta Air Lines increase of $10 each way on some fares.

The airlines are reacting to a 58 percent surge this year in prices for jet fuel, which is usually their second-largest cost behind labor. Spot prices in New York rose to $1.96 a gallon yesterday and are up 28 cents in the past two weeks. Crude oil, from which the fuel is refined, briefly reached a record $67.10 a barrel on concern that demand will outstrip production.

"Airlines have to really increase prices," Ray Neidl, a Calyon Securities USA Inc. analyst in New York, said yesterday in an interview. "They cannot go on absorbing these fuel costs any longer. The airlines have been too meek in taking price increases, given the demand."

If the fare increases stick - and with Northwest involved they likely will - it would be the industry's 11th this year, with $5 each way the typical amount. Airlines usually back off higher ticket prices when rivals don't match them, and Northwest has historically been the spoiler for the other carriers.

The higher fares come as most airlines are experiencing increasing passenger traffic. American's traffic in July rose 8.1 percent from a year earlier. The gains were 6.1 percent at Delta and 5.4 percent at Northwest. Southwest Airlines, the largest low-fare carrier and the dominant airline at Baltimore-Washington International Airport, logged a 12 percent increase.

Fuel costs have contributed to continued losses for some of the biggest U.S. airlines, which have had combined net losses of $33 billion in the past four years. Fuel typically accounts for 10 percent to 20 percent of airline expenses, the Air Transport Association trade group said on its Web site. U.S. carriers will pay more than $28 billion in fuel expenses this year, rising $6.7 billion from 2004, the group said last month.

Delta and Northwest both have said they may be forced to file for bankruptcy protection if they aren't able to further reduced costs. US Airways, United and ATA Airlines are operating in bankruptcy.

The growth of low-fare carriers such as Southwest has prevented larger rivals from boosting prices on many routes, said Sean Egan, managing director of Egan-Jones Ratings Co. The low-fare airlines, which can make money because their operating costs are lower, have expanded to 30 percent of the U.S. market.

"The core problem is not the increase in fuel prices but, rather, the incredible competition from the lower-cost airlines which have restricted Delta's and Northwest's ability to pass on their increased costs," Egan said. He said he expects Delta to file for Chapter 11 by mid-October.

American also boosted fares $10 each way on routes where it competes with Independence Air to match increases by that low-fare carrier.

In Canada, WestJet Airlines Ltd. said it matched Air Canada in raising fares by C$5 ($4.18) each way on flights under 300 miles, C$8 on flights between 301 and 1,000 miles and C$12 for flights of more than 1,000 miles. Air Canada is that nation's largest airline and WestJet is No. 2.

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