Airline tickets pricier – and not just due to oil
Airline tickets are more expensive as fuel prices rise. But an improving economy and industry consolidation are also pushing up the price of airline tickets.
U.S. airlines have used surging oil prices to justify fare increases of up to $60 per ticket since the start of the year. But the rising cost of fuel isn't the only reason it's getting more difficult to find cheap fares.
The improving economy, a shrinking supply of seats and industry consolidation are also to blame.
Even before turmoil in the Middle East drove oil prices higher, airfares were headed higher. The average cost of a round-trip ticket on a U.S. airline was $360 before taxes at the start of 2011, a 9 percent increase from the previous year. By summer that figure could reach $430, says Robert Herbst, an independent airline analyst.
Some high-traffic business and leisure routes, such as New York to Los Angeles, will see large hikes, Parsons says. The cheapest fare between those cities last July was $382. This year, it's $544. Parsons notes a handful of domestic routes, such as Dallas to San Francisco, are down thanks to new competition.
Airlines have the upper hand on prices for several reasons:
— The improving economy. Business travelers are expected to take 441 million trips this year, a 3 percent increase from 2010. As a result, airlines are reserving more seats for pricey last-minute bookings. That leaves fewer cheap fares for leisure travelers, who tend to book further in advance.
— Fewer seats. During the recession, airlines reduced the number of routes and planes they fly. As travel demand picks up, this shrunken supply of seats allows the industry to charge more. Planes are 82 percent full on average, compared with 70 percent full before the recession hit in late 2007.
— Consolidation. Six airlines have combined into just three over the past 14 months — Delta and Northwest, Continental and United, Midwest and Frontier — leaving bargain-hunters with fewer choices.
American Airlines raised U.S. fares by $10 per round trip Wednesday but pulled back the increase Friday after other major airlines decided not to follow suit. It would have been the seventh broad price hike this year.
It isn't just the base fare getting more expensive. Checking bags, reserving an aisle seat and other services are no longer universally free.
Another change working against leisure travelers is the budding dispute between airlines and online travel sites. The airlines want to pay the sites lower commissions for each ticket purchased. The result for fliers: Not all available flights can be found on some sites. For instance, Orbitz, Expedia and Hotwire no longer list American Airlines flights.
"It's just more work for the consumer to figure out who has the best fare," says Anne Banas, executive editor of travel advice site SmarterTravel.
Despite everything working in the airlines' favor, the industry is not expecting a comfortable ride over the next year. While U.S. airlines earned a combined $4.1 billion in 2010, the rising cost of fuel threatens to push many of them into the red in 2011. Fuel accounted for almost 25 percent of the airlines' operating expenses last year, the biggest cost after labor.
Jet fuel topped $3 a gallon last week and is now up almost 50 percent from last year. Even if prices rise no further, airlines will have to raise average fares by 10 percent just to break even, says Herbst.