U.S. air fares poised to climb this fall

By Reuters
Posted Aug. 23, 2010 at 12:32 p.m.

Travelers on U.S. airlines can look forward to higher fares and higher fees this fall as demand recovers from the 2009 economic recession, a top fare expert said Monday.

Fares for domestic flights are 16 percent to 20 percent higher than they were a year ago, said Rick Seaney, chief executive of Farecompare.com.

He said, however, that lingering concerns about the economic recovery has made carriers more cautious. So fare increases in the post-summer travel season will be restrained, Seaney said.

“Demand is going to be pretty good this year for holiday travel because a lot of people forewent their trip last year,” he said.

“(But) with the economy the way it is and so uncertain, the airlines are just going to stand pat right now and see how things go,” he said.

The U.S. airline industry has been battered in the last two years by an economic downturn that drained travel demand.

Carriers have responded by closely managing capacity and launching new fees for products and services to generate revenue. July data from U.S. airlines show carriers saw higher traffic and planes that were nearly 90 percent full on average.

“Load factors are up,” said Morningstar equity analyst Basili Alukos. “Obviously planes are fuller so you’re at a point where there is the opportunity to add a new plane.

“So now you’re seeing carriers slowly start to expand capacity. They’re always chasing the marginal passenger.”

Seaney agreed. He believes carriers have shown impressive restraint when it comes to managing the number of seats they sell.

“I wouldn’t say they’ve recovered, but I think they’ve shown a lot of discipline through two and half years of really hard times,” he said. “I think they’re still pretty worried about the economy.”

He expected strong travel demand this fall and winter, especially during the holidays.

“I think that demand is going to be pretty good this year for holiday travel because a lot of people forewent their trip last year,” he said.

Airline shares were near flat Monday, with the Arca airline index down 0.5 percent. Delta Air Lines Inc shares were up 1 cent at $10.54 in early afternoon trading on the New York Stock Exchange. The shares of American Airlines parent, AMR Corp, were down 2 cents at $6.55 on NYSE.

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