Major Airlines Reinstate Fare Hike

Leading U.S. airlines on Tuesday said they have reinstated a one-way fare increase less than a day after rescinding it, pressing forward in their bid to recoup revenue lost to skyrocketing oil costs.

AMR Corp.'s (AMR) American Airlines, Delta Air Lines Inc. (DAL), Continental Airlines Inc. (CAL) and Northwest Airlines Corp. (NWAC) all raised one-way tickets on most domestic flights by $5, building on two similar fare hikes in recent weeks.

Continental was the first U.S. carrier to raise its fares last week, and most rivals followed suit, but several then backtracked on the move on Monday. Airlines tend to be cautious about raising fares because uncompetitive prices can send thousands of passengers to rival carriers.

"There does appear to have been a little bit of confusion on the part of one of our competitors," Jeff Smisek, president of Continental Airlines, said on Tuesday at a Goldman Sachs transportation conference in New York. "I think the fare increase is still working its way through the system."

JP Morgan analyst Jamie Baker said Delta erroneously withdrew the fare increase on Monday, but several other airlines also rescinded it. A Delta spokeswoman declined to comment on the withdrawal.

Baker called the increases a step in the right direction. The fare increase, if sustained, should help the airlines subtract about a $5 per barrel from their oil costs, he said in a research note on Tuesday.

"While clearly insufficient to negate the $55 per barrel oil," he said, "the recent fare activity represents the industry's first meaningful and likely successful effort to boost paid fares in nearly three years."

U.S. airline shares traded higher on Tuesday, led by Continental, which was up 48 cents, or 4.5 percent, at $11.22 on the New York Stock Exchange (search), compared with a 1.6 percent rise in the Amex Airline index (search).

The U.S. airline industry has been struggling with skyrocketing fuel prices as oil prices have reached record levels in the past few months. U.S. crude oil futures traded around $57.30 a barrel on Tuesday, down from a record high of $57.60 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.

"The good news is that we're getting some traction with prices," AMR Chairman and Chief Executive Gerard Arpey said at the conference. "The bad news is that we're about a year and a half too late."

Several previous attempts by carriers to raise fares in the past year have wilted in the face of competition. In fact, some carriers that raised ticket prices last week left fares untouched on routes with low-cost rivals.