Anatomy of a Domestic Airfare Hike – Small One This Week

There are plenty of air travel articles out recently noting the increase in domestic airline ticket prices for summer travel this year (not to mention the hefty increases in summer airfare to Europe).

I know this because I have been called dozens of times to discuss this over the past few weeks.

To be honest domestic airfare really didn’t have anywhere else to go but up after last year’s decade low bottom in May.

Hefty Summer Airline Ticket Price Increases

I for one didn’t expect some of the hefty prices we are seeing for late June and July travel as airlines have basically shut down selling their cheapest price points (What are airline ticket price points?) on many routes for these summer departure dates as well as tacking on peak summer air travel surcharges.

Domestic airlines have been using every arrow in their quiver to lift prices:

  • Fewer and more restrictive sales – (no need to discount when planes are full)
  • Surcharges from $10 to $30 each way for summer dates through August
  • Several attempts at modest system wide airfare hikes

I am going to try to shed some light on the last item in that list, “modest airfare hikes”, which airlines have tried to trot out several times this year without much luck.

Airfare Hike Glossary

For our purposes at FareCompare.com we call an effort to raise airfares on more than half of an airlines domestic route system an airfare hike attempt. Historically hike attempts are initiated by legacy airlines (low cost airlines rarely lead out) and the price hike tends to “stick” if all the legacy airlines match withing a few days (five legacy airlines now, American, Continental, Delta, United, US Airways – soon to be four).

Low cost airlines in a few instances will come along and join, guaranteeing an airfare hike “sticks”, but in many cases they don’t join in and can be one of the factors that make the hike attempt crumble. When a hike attempt fails, airlines rollback their prices very quickly so that overall pricing stays at a competitive equilibrium.

History of Airfare Hikes

Historically domestic airfare hike attempts are for amounts between $10 and $20 roundtrip, there were 17 successful (sticky) attempts in 2007, 14 in 2008 and only 4 last year (2009). So far this year almost all attempts have crumbled and the amounts have been modest, typically below $6 roundtrip.

These system wide airfare hike attempts tend to hurt smaller cities worse than bigger ones because they lack the daily competition which exerts downward price pressure in larger metro cities.

Airfare Hike This Week

Case in point this Wednesday (19-May-2010) when American Airlines initiated a modest airfare hike (micro hike) at 1pm that increased prices by $2, $4 and $6 roundtrip based on route differences and mileage.

The next morning at 10am United and Delta quickly matched and later at 1pm US Airways, Alaska and Frontier jumped in. Last but not least at 8pm Continental hopped on board and the hike was “sticky” – for now.

Typically once everyone has matched the hike sticks, but in some cases legacy airlines bail out ceding to pressure from low cost airlines or a down tick in demand.

Airfare Graph to Drive the Point Home

This dynamic graph comparison of average cheapest airline ticket prices from New York shows just how volatile airfares are on a daily basis. Airfare hikes show up in this graph in form of a trend – as airfare hikes stick the trend moves up.

Average Cheapest Airfare from New York to Top 50 U.S. Destinations 2009 vs. 2010

What does an Airfare Hike Mean for You?

Passengers can only fight higher airfares by being flexible and starting to shop (not necessarily buying) earlier before departure (about 3 months is good for domestic airline tickets). Flexibility includes travel dates and destinations as individual route prices vary dramatically from day to day.

If prices were always low, like last year’s decade lows in May when most of us had much more on their mind that travel, flexibility would not have been a big deal, as every departure day was cheap.

That is not the case this year, so don’t procrastinate and get stuck with $600 trips to Vegas and be prepared to gulp a bit when you swipe your credit card virtually online and use our tools at FareCompare.com to make the best air travel buying decision – every time.

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Published: May 21, 2010