Fasten Your Seat Belts: Airfares are Going to Rise

Last Updated Jan 4, 2011 5:50 PM EST

It's been a great 12 months for the airlines: soaring profits, ancillary fees rising, and nearly full planes. But it's the consumers who are paying the price.

American Express predicts airfare increases of up to 6 percent this year. I think that's a conservative estimate. Already airfares have gone up $10 per flight in 2011, according to findings from Farecompare. That's a huge bottom line number for the airlines profit and loss statements. And that doesn't count the increasing revenues from ancillary fees (checked bags, pillows, blankets, et al).

But wait, it's about to get even worse for business travelers. Now that capacity has been reduced and the airlines are dramatically filling more seats, there's reduced incentive for the carriers to do business with online travel agencies (OTAs) and third-party Web sites. In December, American Airlines removed its fare listings from Orbitz. Delta removed itself from three smaller websites. And this week, Expedia began hiding American fares. The turf wars have begun in earnest. The airlines, without officially announcing the move, are trying to control pricing by reducing the number of distribution channels and urging customers to use their own Web site.

Some might argue that this is a restraint of trade, other might suggest that the days of discount fares are over.

Not so fast. There's still hope for the consumer. How?

1. Make a call. There's a longstanding myth that all the available inventory is on the Web. Not true. The inventory that's on the internet is the inventory that travel providers choose to make available to those sites. I always check with a human being first, and sometimes the price disparities are huge.

Example: the lowest, last-minute, one-way fare two weeks ago from Los Angeles to New York on the American Airlines Web site was listed as $739. But a call to American found another flight for about $218. Why? The airline had decided to match one of Virgin America's transcontinental fares, but not on the Web.

2. Comparison shop online, too. I needed to buy a colleague a round -rip on the US Airways shuttle from LaGuardia to Washington Reagan. On the US Airways Web site, the lowest fare for any of their hourly flights was a whopping $296 each way. I then went to Orbitz and found the same flights for $51 each way. Same flight, different pricing inventory on different sites.

There's no guarantee that this huge gap in pricing between Web sites will continue, but there are still great choices out there to allow for some comparison shopping. I still like Kayak.com, and another site, Momondo.com (from Denmark) has some surprising deals both in the U.S. and overseas that I haven't been able to find elsewhere.

The bottom line here: the basic pricing strategies have changed between and among airlines as their economic situation improves. In the recent past, low fares -- and fare wars -- were started by the weakest competitor in a market. The larger airlines would then match those fares, with the philosophy that while they couldn't make a profit at those prices, they could lose money longer than the weakest competitor.

Today, there are very few weak competitors, because they've all had a great 12-18 months. As a result, there are very few fare wars, and worse, another change in pricing. In the past, when one large airline raised fares, if just one competitor didn't match the increase, the initiator of the fare bump would back down. Today, when an airline increases fares, all the other airlines do as well.

It's going to be a tough few months, and what makes this particularly interesting is that historically this has been the time of low fares. If the fares aren't low now, you'd better fasten your seat belts for summer!

Related: Photo Credit: Stock Exchange
  • Peter Greenberg

Comments

Market Data

Market News

Stock Watchlist