Airfares Soar As Planes Fill up; Rise is record 10.3%

Soaring jet fuel prices and rising traveler demand are driving high airfares even higher.

Fares for flights departing in the USA rose a record 10.3% in the first quarter of 2006 from a year ago, according to data released by the Department of Transportation (DOT) on Wednesday.

And Delta Air Lines -- in a move likely to accelerate the trend -- raised most domestic fares by $5 one way, bringing the highest coach seat price in its simplified fare structure to $504, and $704 for first class.

Industry analysts say other carriers will likely follow. US Airways, United, Northwest, Continental and American airlines said they are evaluating Delta's move but had taken no action by late Wednesday. If they do match Delta, it would be the seventh industrywide price increase this year, excluding Southwest, according to JPMorgan airline analyst Jamie Baker. That's on the heels of 12 rounds of increases in 2005, he says.

"It's not good for consumers," says Ray Neidl, an analyst at Calyon Securities. But it's better than "if you've got a bunch of bankrupt airlines."

Passenger demand throughout the summer has been especially strong and flights crowded. For example, 88% of United's seats were full in June; 85% for Delta. And several domestic carriers returned to profitability in the second quarter after years of losses. Delta and Northwest remain in bankruptcy court.

The record rise in DOT's airline price index, the highest year-to-year increase since the index's start in 1995, is based on prices of 5 million to 6 million tickets actually used by passengers. Changes in prices are measured each quarter.

Still, the government data show that competition helps lower prices, notes Terry Trippler, an air travel consultant with Myvacationpassport.com. Fares in Denver, where discount carrier Southwest recently began offering service, fell 2.2%. By contrast, cities with fewer discount carriers, such as Cincinnati and Raleigh, N.C., faced the steepest increase in prices, according to the DOT data. Cincinnati, whose airport is a large Delta hub, had the largest year-to-year fare increase for the first quarter, up 36.6%.

Delta spokeswoman Betsy Talton defended the fare increase, saying it was triggered largely by rising fuel costs. Prices for light, sweet crude oil closed at $73.94 per barrel Wednesday, up almost 23% for the year.

Delta introduced its simplified fare program in January 2005 to ease consumer confusion by reducing the number of fare types and eliminating the Saturday-night-stay requirement. With the latest increase, the cap on Delta's SimpliFare for first-class seats has risen 18% since March's $599 level, Baker wrote Wednesday, adding that he expected other carriers to match it in the next two days.

"There's no cap when you keep raising it," Trippler says. "Other airlines were not happy when (Delta) did this, but it's a choice Delta had to make ... 95% of it is fuel."

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