Higher Fuel Prices Take Toll On Airfares, Profits The rise in the price of jet fuel is causing airlines to raise ticket prices. The pressure is also impacting airlines' profits, causing some carriers to reconsider expansion plans. But if passenger demand remains strong, airfares could climb even higher.
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Higher Fuel Prices Take Toll On Airfares, Profits

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Higher Fuel Prices Take Toll On Airfares, Profits

Higher Fuel Prices Take Toll On Airfares, Profits

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If you thought prices were high at the pump, imagine pulling up in a 747. The biggest price increases have been for jet fuel, and airlines have not been shy about passing those costs on to consumers.

As NPR's Wendy Kaufman reports, they've just announced a hike in ticket prices for the sixth time this year.

WENDY KAUFMAN: Every day, Ike Anant, the director of Transport Analytics for Expedia Inc. pores over airline ticket prices.

Mr. IKE ANANT (Director of Transport Analytics, Expedia Inc.): We've see that the airlines have been pretty fast in raising fares this year.

KAUFMAN: Airlines are charging higher prices for many domestic tickets, especially those bought at the last minute, say by business travelers. And they're imposing fuel surcharges on many international flights.

Anant points to another trend: Airlines are cutting the number of seats available at the lowest price while increasing the number of higher-price tickets.

Mr. ANANT: I think even if the fuel prices were not going up, the fares would still be going up just because there is demand, and airlines are able to do it.

KAUFMAN: He says ticket prices might not be going up as much or as fast as they are now, but with robust demand and a somewhat limited supply of seats, airlines were in a position to raise fares.

Still, there's no question higher fuel costs are playing a big role. Here's John Heimlick, the chief economist at the Air Transport Association, the industry's trade group.

Mr. JOHN HEIMLICK (Chief Economist, Air Transport Association): Because our business is so energy dependent, changes in price can have a profound impact on our bottom lines. It's no wonder that we've seen a number of carriers try to pass a good part of that through to the final ticket price.

KAUFMAN: Filling a plane with jet fuel is the largest operating expense airlines have. But figuring out how much more an individual airline is now spending on fuel can be difficult. This week, the market price for a gallon of U.S. Gulf Coast jet fuel was $3 a gallon. At this time last year, it was just $2.

Most airlines aren't actually paying $3 a gallon because as Mike Roarke, an analyst with the investment firm McAdams Wright Ragan explains, most airlines are hedging.

Mr. MIKE ROARKE (Analyst, McAdams Wright Ragan): It's an insurance policy effectively that they pay a premium for that fixes their fuel costs at a certain price per barrel of oil.

KAUFMAN: Airlines have various strategies on hedging. US Airways isn't hedging at all right now, while other airlines have locked in cheaper prices for up to two-thirds of the fuel they expect to use this year.

But hedging isn't free, and it doesn't totally insulate an airline from a huge run-up in fuel prices. Some carriers have already said that because of higher fuel costs, they won't be expanding and adding new flights as quickly as they had planned. That probably means that so long as passenger demand remains strong, ticket prices are likely to stay up or perhaps climb even higher.

So what's a would-be traveler to do? Expedia's Ike Anant suggests buying a ticket as soon as you can and being flexible.

Mr. ANANT: Generally if you're flying from one big city to another big city, you have options of more than one airport also flight times. Early mornings and late evenings are generally more expensive. Generally, the midday departures are less expensive.

KAUFMAN: Midweek and Saturday flights often cost less; and buying a package where hotel flight and car rental are combined in a single price can also save you money. One more tip: Some airlines offer price guarantees, so if the price goes down after you've bought a ticket, you're can get a refund or a credit. But the terms of the guarantees vary widely, so be sure to read the fine print.

Wendy Kaufman, NPR News.

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