Three Airlines Increase Fares to Help Cope With Fuel Prices

www.nytimes.com By EDWARD WONG Three leading airlines increased nearly all their fares by $10 each way yesterday.

The move, the most significant attempt at a fare increase since last summer, was an effort to re-establish pricing power as fares have hit record lows. But several industry experts raised doubts that the airlines would be able to keep the higher fares. With the possibility of a war, travel has continued to slump, they say, and the situation will only worsen if the United States attacks Iraq. Advertisement

The three carriers — Continental Airlines, American Airlines and US Airways — will also have to see whether their top rivals decide to match the increase. If those carriers — Delta Air Lines, Northwest Airlines and United Airlines — do not raise their fares, then the three will probably have to back down.

People in the industry are watching Northwest in particular, because it did not go along with several fare increases last year, forcing its rivals to return to lower fares.

Continental, the country's fifth-largest carrier, was the first to put the fare increase into effect yesterday morning .

"Although the airline industry is suffering from overcapacity and weak demand, this fare increase is necessary to get Continental back on the path to financial recovery," the company said.

Continental said the increase was necessary to help offset "dramatically higher fuel expenses."

American soon matched the increase, and US Airways acted by late afternoon, according to Terry Trippler, an air fare expert who works for CheapSeats.com.

Fuel is the second-highest expense for airlines, behind labor costs. In the last year, fuel prices have spiked because of the labor strife in Venezuela and tensions with Iraq, said John Heimlich, an economist for the Air Transport Association, the industry's main trade group. All the big airlines have a certain amount of their fuel hedged in case the price of oil goes up, but they have not been able to avoid paying higher prices on average.

The spot price for a gallon of jet fuel is now $1.20, more than double the 57 cents it was a year ago, according to the trade group. The price for West Texas intermediate crude oil is expected to be $34.25 a barrel this month, compared with $20.65 a year ago.

In December, airlines paid an average of 77.4 cents a gallon for fuel, up from 60.1 cents in December 2001.

The cost of crude oil, and thus jet fuel, will almost certainly go up if there is a war in Iraq.

Even so, there is no guarantee the fare increase will stick, experts said. That will depend on the market conditions for air travel, which are dismal right now. Furthermore, they said, carriers with relatively good cash reserves — Northwest, for instance — can better afford to keep fares lower than some of their competitors.

"The airline industry needs it," Michael Boyd, an airline consultant based in Evergreen, Colo., said of the price increase. "Whether it'll stick is another issue. With war jitters out there and other things, I don't know whether it'll stick."

Just after Christmas, US Airways tried adding a fuel surcharge of $10 each way on round-trip fares. American soon matched the increase, but the two carriers retracted their moves before the end of the year. Frontier Airlines, the low-cost carrier, tried adding a $5 surcharge each way around the same time, but eliminated the increase before the end of January.

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