Airlines are Making Money – But Don't Worry about Higher Ticket Prices

Airline second-quarter financial reports have been coming in all week with mostly good news as carrier after carrier reports a profit. In some cases, these are real comeback stories: As noted by USA Today, United Airlines went from a loss of $417 million at the start of last year, to a 2Q 2013 profit of $469 million. The question is, should passenger now brace themselves for higher ticket prices? FareCompare co-founder and airfare analyst Rick Seaney says no.

How airlines make billions (aside from tickets)

Listen as airfare analyst Rick Seaney explains, it’s all about the fees:

Why Ticket Prices Won’t Rise

“A goodly portion of those second-quarter profits are related to favorable fuel costs,” said Seaney. “There has not been an explosion of demand.” In general, he added, fares have been flat year-over-year after peaking last summer, “and barring some unforeseen economic boom or oil crisis, I don’t expect much higher fares.”

Seaney’s analysis coincides with figures released by the U.S. Dept. of Transportation this week, showing ticket prices at the start of this year were almost unchanged from the start of last year (when adjusted for inflation). So passengers won’t pay more for air travel, right? Not so fast, says Seaney.

Watch for Rising Fees

“The area to watch for is fees,” said the air travel expert. Seaney explained it probably wouldn’t come in the form of new fees but continued increases in existing fees. FareCompare noted such increases earlier this month when Alaska Airlines raised its checked-bag charges.

And speaking of bag fees, Seaney raised another possibility, saying “There is always the potential that JetBlue and/or Southwest could at some point dump their free bags policies.” When asked about this earlier in the year, Southwest’s CEO said, “never say never” but quickly added that there are no current plans to make changes. However, the billions airlines rake in thanks to bag fees must be a source of envy for the two bag fee-free carriers.

One sure way to save on bag fees (and lost luggage)

Airfare Prices in the Future

As for the future, analyst Seaney says, “Airlines have three of the four triggers needed for higher prices in their favor: fewer seats [through capacity cuts] and less competition [from mergers and more], along with high fuel prices they would like to recoup. The lone holdout is demand which is likely to remain tepid but stable for now.”

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Published: July 26, 2013