Fares for travelling within the US look set to rise further still after
several of the major airlines announced capacity cuts to deal with the
threat of rising oil prices.
The US domestic market has been very competitive in the past couple of years
and attempts to raise fares have usually been in vain. However, since the
beginning of the year, the big carriers, such as American, Continental,
Delta, Northwest, United and US Airways have pushed through a series of fare
increases which have remained in place - helping them withstand the rising
cost of aviation fuel.
Things look set to get worse. United
said this week that it was going to slash capacity by around 14% in the
last three months of this year and by a further 17 or 18% in 2009. As a
result, the airline said it was grounding 94 Boeing 737s and discontinuing
its low-fares operation Ted. Meanwhile, Continental announced it was to ground
67 Boeing 737s used for domestic services and cut the number of flights it
offers by 16% compared to last year. Two weeks ago, American
Airlines announced plans for similar cuts.
The reductions can only mean one thing, that US domestic air fares are on the
way up again.
It’s not just fares that are increasing either – add-ons are on their way up
too. Virgin America says that it is doubling a number of fees it charges for
carrying baggage and pets among other things while American Airlines has
said it plans to introduce $15 fees for carrying any bags in the hold –
rather than just additional bags after the first.
Business travel agencies agree. Rose Stratford, senior vice president for
industry relations at BCD Travel,
says: “Although the volatility of the airline market makes specific
fare-hike forecasts extremely difficult at this moment, BCD Travel does
predict that the cost of air travel will continue to increase. The reduction
in US domestic capacity is just one element at play; travellers and
corporate travel managers must also take into account the continuing and
broadening impact of additional fees such as checked baggage, premium seat
and exchange fees; fuel surcharges and changes in airfare structures such as
reduction in available one-way fares and the re-imposition of
Saturday-night-stay requirements.”
The capacity cuts come after airline body IATA revised its forecasts for the
profitability of the aviation sector. At the beginning of April, IATA said
the world’s airlines would make overall profits of $4.5 billion this year.
With oil rocketing to $135 a barrel, it has now said the world’s airlines
will make combined losses of $2.3 billion. It also says that if oil stays as
expensive as it is now, these losses could spiral to $6.1 billion.
With such losses on the horzion, US airlines will feel they have few
alternatives to charging travellers more.
