Airfares Continue Rising

Airfares are heading back up, according to the Wall Street Journal’s Travel Watch, with summer fares to Europe now 29 percent higher than they were last summer.

The airlines have been itching to raise fares for years, but have been stymied by two factors. First, they were undercut by the industry’s super-competitive pressures. Even when they began losing money at an alarming rate, airlines continued to undercut each other on price in an attempt to grab market share. Then, as the recession deepened, they could not cut capacity fast enough to match the drop in demand.

As the economy recovers and demand grows, the remaining Big Five domestic airlines and Southwest could keep waging fare wars against each other. They could try to expand their routes, pursuing the battle for market share or moving to cripple a wounded competitor. Instead, they’re talking mergers. At this point, they just haven’t got much in the way of reserves to fight with, and that includes the relatively healthy Southwest Airlines.

As Southwest CEO Gary Kelly said in an earnings call Thursday: “… until we’re comfortable that we’re getting our profit targets it makes no sense to grow the fleet.”


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