Strong June Traffic Means It's Time For Airlines to Raise Airfares -- Cautiously

(MoneyWatch)  June airline traffic numbers are now in, and the results were quite good across the board. You know what that means? It's time for fares to start climbing higher -- but the airlines need to be cautious about it. Take a look at the chart down below and you'll see something that I don't believe has happened since I started reporting the monthly numbers. Every single one in there is a positive number. While airlines have been filling a greater percentage of their seats for awhile, they had been cutting back on the number of seats out there. That meant that Available Seat Miles (a measure of total potential passenger capacity) was negative on a year-over-year basis. No longer.

Every single one of these airlines posted increased in ASMs. The smallest increases were from the traditional legacy carriers while the low cost carriers tended to be higher. They all also posted increases in Revenue Passenger Miles (think of it as ASMs that were flown with butts in seats). That, of course, led to a higher load factor (RPMs/ASMs).

It's important to remember that these increases are coming off some incredibly low numbers last year, when demand was hitting rock bottom. Still, it's good to see the rebound in full effect, and it's likely to get airlines to start raising fares even higher. That's the right thing to do, but there is a danger in that as well.

Anytime airfare goes up, the economics for start-ups start to look better. When an airline starts up, it usually has very low costs, and that means that when the old guard gets fares too high, someone else comes in and starts a competitor. In nearly every case, that brings fares crashing down and everyone bleeds until the start-up runs out of money and disappears. It's happened so many times, and it's not good for anyone except travelers -- and even there it's only short-lived relief. So, the key for airlines is to raise fares to a good, sustainable level but then hope that some moron with money doesn't get a twinkle in his eye to start funding a start-up airline. In other words, fares need to rise but they can't get too high or everyone will be miserable again.

Here are the June traffic numbers from 2010 vs 2009.

Airline	ASMs	RPMs	Load Factor
AirTran	4.0%	7.4%	+2.8 pts
Alaska*	2.5%	8.6%	+4.6 pts
Allegiant	6.2%	7.8%	+1.4 pts
American*	1.3%	3.2%	+1.6 pts
Continental	2.2%	4.7%	+2.1 pts
Delta	1.5%	4.2%	+2.2 pts
Frontier	10.0%	15.0%	+4.0 pts
JetBlue	5.8%	10.9%	+3.9 pts
Southwest	1.9%	5.0%	+2.4 pts
United	1.1%	3.5%	+2.0 pts
US Airways#	2.8%	2.9%	+0.1 pts

*Does not include regional operations #Only includes wholly-owned regional subsidiaries

Related:

• May Air Traffic Shows Early Signs of a Strong Summer; Now the Unions Want a Piece of the Pie
• Airlines Filled More Seats in April, but That Can't Continue Forever
• Revenues Are Up, But Can Airlines Avoid the Perils of Overcapacity?

Original Photo via Flickr user beigeinside