Airlines Posting Profits So Fare Sales May Wane
Good times are finally back for the nation’s airlines. For travelers, that means it’s getting harder to find bargains.
The summer travel season got off to a roaring start, fares are up, and money is rolling in from fees on things like checked baggage.
The six biggest U.S. airlines earned about $1.3 billion in the second quarter, and more profits are expected for the rest of the year. Even so, airlines are still woozy from the one-two punch of record-high fuel prices followed by a recession. Those six big carriers lost $22.7 billion in 2008 and 2009. And that’s just a portion of the $63.35 billion that U.S. passenger airlines lost from 2001 to 2009, according to the Transportation Department.
There were plenty of fare sales when the airlines were struggling to fill seats. Now those seats are in demand, so deals are less common. And travelers are paying for “extras” such as an aisle seat, checking bags and buying a ticket over the phone – things that used to be part of the fare.
Here’s a look at what travelers can expect in the months ahead:
FARES AND FEES
The airlines are hooked on fees after two years of using them to overcome, first, high fuel prices and then slumping travel demand. A new study shows that worldwide, carriers took in $13.5 billion from fees in 2009, a 43 percent jump in just one year.
“Fees are going to stick and they’re going to become more pervasive,” says Jay Sorensen, a former airline executive who is now president of consulting firm IdeaWorks, which did the study on fees.
United and American led the way on “ancillary revenue,” including fees, at about $1.8 billion apiece last year, according to IdeaWorks. United Airlines President John Tague calls fees “an unequivocal success,” and suggests his airline could still double the amount it’s bringing in with baggage fees.
Everyone is watching to see if travelers pay Spirit Airlines’ fee of $45 for some carry-on bags on flights starting Aug. 1. Most of the big airlines have promised Sen. Charles Schumer, D-N.Y., they won’t follow Spirit’s lead.
Airlines have been able to boost ticket prices too. Summer fares are up an average of 18 percent, according to figures from a trade group for the big airlines.
Travel demand will taper off as fall approaches – Continental Airlines is already seeing that. Still, airlines will try to avoid slashing prices. Rick Seaney, CEO of FareCompare.com, says the airlines are getting better at waving sale prices in front of customers but selling most seats at higher fares.
Planes are stuffed like never before. Including regional flights, Delta filled 88 percent of its seats in June, Continental sold 87 percent, and American 86 percent – that’s about 2 percentage points higher than last summer.
“Leisure demand has been strong, and we expect it will remain so throughout the remainder of the summer,” Continental CEO Jeff Smisek told analysts.
Continental also hinted that demand is trailing off. Advance bookings for the next six weeks are running behind the last year’s pace.
Normally when airlines start making money after a slump, they’re tempted to add new flights to snag returning travelers. This time might be different. Sluggish bookings and concern about the weak economic recovery will put pressure on airlines not to add flights that might operate half-empty.
Shares of Delta Air Lines Inc. were punished last week partly because the world’s biggest airline said it would increase passenger-carrying capacity up to 3 percent next year. Too soon, investors seemed to be saying. If the airlines add too many flights, it will increase their costs and push fares down.
Several large U.S. airlines are in the middle of labor negotiations that could lead to higher costs and even disruptions for travelers.
The most acute problems are at American, where flight attendants and some ground workers are talking openly about possible strikes this fall. American’s parent, AMR Corp., spends 30 percent of its revenue on labor compared with 18 to 22 percent at the other big airlines.
Unions at UAL Corp.’s United and Continental Airlines Inc. need to work out a combined contract that will take effect if the airlines complete their planned merger. Delta faces unionization votes by flight attendants and ground workers.
Unions are frustrated and want to make up for past wage and benefit cuts. But whether that means they’ll walk off the job and leave passengers stranded is another question. Federal law makes it hard for unions to strike.