Failed Bid to Raise Airfares A Sign that Fares Have Peaked?

FORT WORTH, Texas - After a year of steady increases in airfares, prices may have finally peaked, at least for now, according to airline-industry analysts.

A broad $10 increase on round-trip tickets that was implemented late last week by several airlines, including Fort Worth-based American, collapsed Monday after it was rescinded by United Airlines.

It was the year's second price increase to be withdrawn after just a few days. Only one fare increase has stuck so far in 2007.

The collapses could be a sign that airline ticket prices are stabilizing.

"The relevance and likelihood of future increases is increasingly debatable," analyst Jamie Baker of JPMorgan Securities said in a note to investors Monday.

The sharp uptick in ticket prices was a key component of the airline industry's return to profitability last year. The major carriers raised fares by an average of nearly 10 percent in 2006, according to analyst Ray Neidl of Calyon Securities.

But that growth slowed considerably toward year's end. Domestic fares in December, for example, were up less than 2 percent from December 2005, according to the Air Transport Association. That was the slowest rate of growth all year.

Neidl is forecasting that fares will increase just 1 percent this year.

However, he also suggested that fares could climb as demand rises during busy travel seasons. "We believe that fare increases will stick once we move forward toward the heavily traveled spring season," he said.

While it's good news for travelers, a softening of ticket prices could slow revenue growth at the major carriers, pressuring them to cut costs further.

"The rate of domestic and international (revenue) improvement should be expected to significantly decelerate as 2007 plays out," Baker said.

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