Inside Story of the Third Airfare Hike of 2012

Earlier today, I declared the third airfare hike of the year a success once all the U.S. legacy airlines and low-cost carriers matched the $10 roundtrip domestic hike which occurred at 10 a.m. eastern time.

Hear airfare analyst Rick Seaney’s inside story on an airfare hike:

Background on Latest Airfare Hike

This new hike actually began brewing last week – after a month of stable domestic airfare prices – when carriers began testing increases on a limited set of routes (in contrast to firing out across-the-board increases).

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This tip-toeing technique typically causes the loss of thousands of hair follicles, as airline pricing departments try to cope with the complexity of jumping in-and-out of the market, trying to match and stay competitive as domestic carriers continue to adhere to the “never be $1 more or less than my competitor” mantra of the past few years.

Other Airlines ‘Pile It On’

At the end of last week, JetBlue – which always tends to march to the beat of a different drummer – upped the ante by jumping in Sunday, sparking a collective set of yawns by its peers the next few days, until just after lunch on Wednesday when Southwest jumped in. That virtually assured that the remaining legacy airlines would not only match the hike, but pile it on by extending the hike to their significantly larger route systems.

Another Cheap Airline On the Way – But Will it Fly?

This behavior eerily resembled the first quarter of 2008 when oil prices went to $110 per barrel (WTI), then reached a dramatic crescendo in July of that year as oil zoomed to well over $140 per barrel. During that time-frame, domestic airlines successfully raised domestic ticket prices via fuel surcharges, which remains a real possibility today as the specter of higher fuel prices looms.

Passengers Not Yet Saying ‘Enough’ to Airlines

Yet the current environment is different – in early 2008, checked-bag fees were a figment of travelers’ imaginations and today they provide most airlines with billions in additional revenue. And back then, flyers could choose from six legacy airlines and more low-cost carriers while today cutting capacity and filled middle seats is the order of the day.

And yet, it so far hasn’t deterred passengers who defy the gravity of daily economic headlines by continuing to take to the skies.

With so much ‘up in the air’ as they say, it is pretty clear airlines will continue to try to recoup fuel increases with regular attempts at airfare hikes this year – and it will be up to passengers to tell the carriers exactly when the price of a middle seat on a packed plane has finally stepped over the line.

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Published: February 16, 2012