CHICAGO – Continental Airlines Inc. (CAL) Monday rescinded last week's fare increase of $5 per one-way domestic flight in a move that could prompt competing carriers to cut fares as well.
The Houston-based carrier declined to give a reason for its decision to rescind the earlier fare increase.
Continent's fare reduction could erode a broad-based effort by the airline industry to implement lasting fare increases to offset soaring jet fuel prices. But experts say the No. 5 U.S. carrier's about-face probably will not unravel a recent movement throughout the industry to increase air fares.
"...we maintain a high level of confidence that this increase will eventually stick by week's end," wrote JP Morgan analyst Jamie Baker in a research note. "Fare increases ought to offset about $5 per barrel of oil pain. Clearly a step, though not a leap, in the right direction."
Continental raised its fares late last week, and several major airlines rushed to match.
Analysts said the industry is in desperate need of higher ticket prices as record-high fuel prices and low-fare competitors put the bite on revenue.
Other airlines that have raised fares on domestic flights in the last few days include Northwest Airlines Corp. (NWAC) and UAL Corp.'s (UAL) United Airlines. Spokesman for Northwest and UAL were not immediately available for comment Monday afternoon.
Continental led the move up with a $5 fare increase on some domestic one-way flights.
"We are seeing an upward trend in air fares," said fare analyst Terry Trippler. That trend started in February when major carriers starting boosting ticket prices on domestic routes.
"It's absolutely got to happen," Trippler said. "Unless the average fare paid increases, we're going to have some airlines that are not going to be around for Christmas travel."
The airline industry has been rocked by record high fuel prices. U.S. crude oil futures traded just below $57 a barrel Monday, down from a record high of $57.60 a barrel reached last week.
Traditionally, such expenses have been passed along to passengers, but competition from leaner discount carriers has kept fares low, causing many airlines to hemorrhage money in the last year.
Several previous attempts by carriers to raise fares wilted in the face of competition. In fact, some carriers that raised fares last week left fares untouched on routes with low-fare rivals.
Low-cost carrier Southwest Airlines (LUV) Monday said it did not match Continental's fare increase. But JetBlue Airways Corp. said it raised fares by $5 on various routes.
Stuart Klaskin of KKC Aviation Consulting in Miami, however, said adjustments are an ongoing process and that fare increases and cuts frequently go unannounced.
"Behind the scenes, I think there's a lot of tweaking of fares," Klaskin said. "There are very few wholesale blanket fare raises in this industry."
Airline shares closed mostly higher Monday. Continental shares were 16 cents higher at $10.74 on the New York Stock Exchange on Monday afternoon. Northwest Airlines shares closed up 21 cents at $6.92 on the Nasdaq.