ATLANTA – The grip U.S. airlines have on travelers' wallets is about to get tighter as carriers go ahead with plans to trim their domestic schedules due to the high cost of fuel.
Executives acknowledge that despite the economic downturn, fares will rise, discounts currently available will be scarce, and routes and frequencies of flights will be reduced as domestic capacity is cut through the end of the year. The changes starting in September come on top of a litany of new charges — for luggage, drinks, pillows and other amenities — announced by some airlines earlier this year.
"Airline travel is airline travel — it's been bad for a long time," Chris Bardasian, an American Airlines frequent flyer, said recently at Dallas-Fort Worth International Airport. "I suspect prices will go up, fewer people will travel, and if you're willing to pay the price it will be fine."
There were sharp capacity cuts during prior weak economic periods in the early 1990s and between 2001 and 2003, but fares went down as discount carriers moved in and filled the void, offering more competition, analysts said. But the high price of oil, airlines' limited ability to further cut certain costs and the fact that many of the discount carriers are facing the same difficulties as the big carriers make things different this time, analysts said.
"Despite this sluggish U.S. economy, the general demand picture is better than it was post-9/11," said Standard & Poor's analyst Philip Baggaley. "In addition, you have this consistent response across the board of airlines raising fares and adding fees."
On average, domestic fares between large metro cities are already up roughly 16 percent since Jan. 2, while fares between small cities are up roughly 37 percent year-to-date, according to Rick Seaney, head of airfare research site FareCompare.com.
The cheapest roundtrip ticket with a 10-day advance purchase, for example, on an American Airlines flight from Chicago to New York cost $258 on Aug. 26, excluding government and airport fees. That was an 87 percent increase from the $138 it cost on Jan. 2 for a similar advance purchase, according to FareCompare.com. The cheapest roundtrip ticket with a 21-day advance purchase on a United Airlines flight from Denver to Washington cost $382 on Aug. 26, excluding government and airport fees. That was a 37 percent increase from the $278 it cost on Jan. 2, Seaney said.
Recently announced airfare sales for travel during the traditionally slow fall season will be harder to come by as more capacity comes out of the system in the last four months of the year.
"If somebody sees a good fare, they should grab it," said Kevin Healy, senior vice president of marketing and planning for AirTran Airways.
Booking early for travel during peak times like the holiday season generally can get you a cheaper ticket than waiting until the last minute. But, airlines usually do not offer fare sales for travel over the holidays.
American Airlines, United Airlines, Delta Air Lines, Northwest Airlines, Continental Airlines, US Airways, JetBlue Airways, AirTran and Alaska Airlines plan to cut domestic capacity during the third and fourth quarters by single- to double-digit margins.
JetBlue, for instance, in September will end service between several cities, including Boston to San Francisco and Washington to Las Vegas. Southwest Airlines Co., which had resisted the kinds of capacity cuts being made by other carriers, will end service in November between Kansas City and Sacramento, Calif., and between Oakland, Calif., and Tucson, Ariz. Some airlines, including JetBlue and Southwest, are adding or expanding service to states where other carriers are reducing service, like Florida. However, Southwest said recently that it will eliminate nearly 200 flights early next year as it struggles with high fuel costs and a weakening economy.
Fewer overall seats in the air means planes that remain will be fuller, which gives airlines pricing power to raise fares.
"The reality is — and I don't want to diminish this — the industry is going to have to cover its costs," American Airlines chief Gerard Arpey said in an interview.
Travelers are bracing for the impact of higher fares.
On a recent day at DFW Airport, passenger Vicki Schweiss, a classic rock DJ in Wichita Falls, Texas, said she might not be visiting her parents in Los Angeles quite so often this fall.
"If I can find a $200 ticket, I'll go," she said. "If there are fewer flights, that won't bother me, but if flights are really expensive, I just won't go or I'll go by myself instead of bringing my son and husband."
At Phoenix Sky Harbor International Airport, passenger Melinda Larson, a retired municipal worker, said she can afford the fare increases. What bugs her, though, are all the new fees.
"I'd just rather they incorporate that in the fare," Larson said of baggage fees some airlines are charging. "And then you're good to go. You don't have to worry about that."
Several airlines are now charging fees for a first checked bag. Some have imposed a fuel surcharge on frequent flier reward tickets. US Airways is even charging for soda.
Cuts in the number of flights in the U.S. also could mean people who booked flights far in advance for travel after September might have to fly at a different time or, if a route has been eliminated by their carrier, they might have to find another airline to get them to their destination. But airlines don't expect that to be a big issue.
"A very, very small number of people would have purchased tickets for travel in September or thereafter before the flights were taken out of the fall schedule in May and June of this year," American spokesman Tim Wagner said.
If someone had purchased a ticket for a flight that is canceled later, airlines provide remedies for passengers. In American's case, the airline would put the passenger on another American flight, accommodate them on another airline or refund their money.
As for frequent fliers, capacity cuts could mean fewer award seats available at the lowest level of award travel. Wagner said that in American's case, people could pony up more of their frequent flier miles to guarantee they get a reward ticket for any available seat on a flight. Atlanta-based Delta recently announced a similar guarantee.
While the price of a barrel of oil has fallen from a high of $147.27 in July to about $115 recently, that is not likely to slow the upward spike in fares, according to fare researcher Seaney. The current price of oil is still more than five times what it was in mid-August 1992, and it is more than four times what it was in mid-August 2002.
"I think if oil prices continue to go down, you will hear calls for relaxation of fuel surcharges, but that doesn't mean they won't hike base airfares," Seaney said.
He said that if load factors reach 90 percent, "There will be no reason to discount."
Another airfare observer, Tom Parsons of Bestfares.com, said recently he believes that fares could fall early next year because discounter Southwest has already published its schedule and fares for that period. But Seaney said any fare decreases by major carriers would be limited to routes they compete on against Southwest. And Parsons said he believes other airlines will probably again charge higher fares for travel after March of next year.
Healy said that while fewer discounted seats may be available in the fall, he is confident AirTran will continue to provide value to its customers.
"I don't think most people in every aspect of their trip will notice a difference," Healy said. "If there is a silver lining, it may be that as a result of fewer overall operations, they may see better on-time performance."
The question on a lot of travelers' minds is how long will airlines be able to continue to raise fares. Airline analyst Ray Neidl of Calyon Securities said in the short-term that depends largely on the economy.
"That's the thing that will be tested this fall," Neidl said.