This Time, Air Fare Hikes May Have Traction

A broad-based attempt by major U.S. airlines to raise ticket prices this week may succeed where past efforts have failed as struggling carriers try desperately to blunt the impact of soaring fuel prices, analysts said Friday.

This week, major airlines, including Northwest Airlines (NWAC), AMR Corp's (AMR) American Airlines, America West Airlines and Delta Air Lines (DAL) , have raised ticket prices, primarily on long-haul flights. They hope that increased ticket demand ahead of the spring and summer travel season will give the fare hikes staying power.

Several previous attempts by carriers to raise fares have wilted in the face of lower-priced competitors.

Continental Airlines (CAL), US Airways Group Inc. (UAIR), and UAL Corp's (UAL) United Airlines said Friday they had not raised fares.

But some analysts say a growing view that oil prices will remain high has fueled the sense of urgency that will embolden the airlines to shift their oil costs to passengers.

"They have to stick," said aviation consultant Michael Boyd of the higher ticket prices. "We cannot sustain the existing fare structure. It's imperative that fares go up. If fares don't go up, airlines are going to go down."

The airline industry has been hammered in recent years by high oil prices, weak revenue and low-fare competition.

Some airline analysts say the oil outlook darkened for the industry Thursday when Saudi Arabia's oil minister said the country expects crude prices to stay between $40 and $50 a barrel this year.

U.S. crude oil futures traded near $51.90 a barrel Friday, down from October's record high of $55.67 a barrel.

Some airlines that raised fares this week say they matched No. 4 U.S. carrier Northwest, which hiked ticket fares by $5 for one-way flights under 1,000 miles and $10 for flights of 1,000 miles or more. It was unclear, however, if Northwest, in fact, initiated this round of fare hikes.

Analysts noted that ticket prices have been especially low this year in the wake of a fare cut by Delta in January when the Atlanta-based carrier, slashed fares by up to 50 percent for travel in the continental United States. Almost immediately, Delta's rivals matched Delta's lower rates.

A Delta spokesman said the increases imposed this week by that airline will not impact flights that are part of the lower-fare structure it put in place last month.

San Francisco-based airline consultant Michael Roach said Delta's fare slashing in January worsened the low-fare environment for some of its rivals, giving them added incentive to buck the low-fare trend in order to cover their costs.

"I think (higher fares) will stick because fares have been very low," Roach said. "This is a pullback from an adjustment to lower fares."

If history is any guide, the fare increases will evaporate if key airlines refuse to go along. The airline industry as a whole must embrace the higher fares or fares will sink again soon, said Stuart Klaskin of KKC Aviation Consulting (search) in Miami.

"There's been a couple of attempts. The attempts typically come from legacy carriers. And what happens is the low-cost carriers, which compete with them on selected routes, where there's route overlay, tend to not match raises," Klaskin said.

"I think it's good for the industry, but I doubt that this increase is going to stick," he said.

Airline shares were mixed on Friday. Shares of Northwest were up 11 cents at $6.85 on the Nasdaq. Shares of Delta were down 10 cents at $4.71, AMR Corp. shares were flat at $8.71 and shares of America West were up 16 cents at $4.92, all on the New York Stock Exchange (search).