Discount Carriers Join Larger Rivals in Fare Increase
On Sunday, Dallas-based Southwest Airlines raised prices from $1 to $3 each way on most tickets, spokesman Ed Stewart said. JetBlue Airways, based in New York, raised fares late Monday by as much as $5 each way on most tickets, spokesman Todd Burke said.
Both carriers said the high cost of fuel was a major factor in their decisions. Oil has traded above $50 a barrel in recent weeks; it closed Monday at $54.95 on the New York Mercantile Exchange.
"Fuel prices are astronomical," Stewart said. "We thought the fairest thing to do would be to do a mileage-based fare increase to try to offset that a little bit."
Those price increases came after moves by discount carriers AirTran Airways, ATA Airlines and Independence Air, which matched a broad price increase implemented Friday by the major hub carriers. Following Northwest Airlines' lead, Fort Worth-based American Airlines raised prices by $10 Each Way on Routes Longer Than 1,000 Miles and $5 Each Way on Shorter Trips.
Friday's action marked the second fare increase in three weeks by major carriers, although discounters have previously been reluctant to raise prices.
"We're in a difficult environment," JetBlue spokes-man Todd Burke said. "It's extremely competitive, and then there's fuel out there, which is hurting everyone."
The Southwest price increase is $1 each way on trips shorter than 600 miles, $2 each way on flights between 601 and 900 miles, and $3 each way on trips longer than 901 miles.
Southwest's $299 cap on one-way fares remains in place, however, as does a similar cap at JetBlue.
Some Southwest markets were excluded, most notably flights from Pittsburgh, where the airline recently added service.
Southwest's price increase comes despite the industry's strongest financial-hedging program, which reduces the effect of high oil prices. It has saved Southwest hundreds of millions of dollars.
Under that program, 85 percent of Southwest's fuel purchases this year are guaranteed at $26 per barrel.
But the remaining 15 percent is still stinging the airline, the only large carrier that has been consistently profitable since 2000.
"The portion of our fuel costs that isn't hedged has gone up quite a bit," Stewart said.
The crushing price of fuel is putting the major hub airlines at risk, said airline analyst Ray Neidl of Calyon Securities. In a report to investors Monday, he advised that fuel costs "should force weaker carriers out of business, or to at least substantially cut operations."
Shares of Southwest (ticker: LUV) closed at $14.25 Monday, up 6 cents. Shares of AMR Corp., American's parent company, (AMR) closed at $9 per share, up 10 cents.