US airlines’ small fare increases seen trumping big boosts
US airlines that once tried to impose broad-based fare increases are now shifting to smaller, more-focused efforts to extract higher prices on domestic flights, according to travel website FareCompare.com.
“Airlines have about reached the maximum levels that they can charge,” FareCompare chief executive Richard Seaney said Friday in a telephone interview. “Now they have to target customers more specifically in order to get people to buy.”
Fares are important as a window on airlines’ pricing power. Passenger revenue for each seat flown a mile, a benchmark industry gauge, has been falling this year at the biggest US carriers as discounters such as Southwest Airlines Co. and Spirit Airlines Inc. add capacity faster than growth in US gross domestic product.
“Rare 2015 domestic airfare hike activity” began last week when JetBlue Airways Corp. started raising prices, according to FareCompare. This week, Southwest showed “significant” fare increases, and was joined by other carriers in piecemeal fashion.
“This is one of the most unusual hikes I have ever seen,” Seaney said. “It’s like a bar brawl in slow-motion.”
In the past, an increase would have succeeded if other carriers piled in within about 24 hours. Otherwise, the effort would have fallen apart as some airlines held out. Until this year, broad efforts to raise fares “often occurred every couple weeks or so,” according to FareCompare.
Airline stocks rose Friday, the third gain in the past two weeks. The Bloomberg US Airlines index climbed 1.2 percent at the close of trading.
“With sloppy industry pricing no doubt a current theme as of late, we remain encouraged to see multiple, competing airline efforts to shore up revenue, in an ever-expanding scope of domestic markets,” Jamie Baker, a JPMorgan Chase & Co. analyst, said in a note to clients.