Airlines Raise Fares Across the Board, Ending Long-Standing Industrywide Price Freeze

Strategic Insights -

The largest domestic airlines in the US, including United Airlines, Trans World Airlines, and U S Airways, have joined forces to raise fares across the board, ending a long-standing industrywide price freeze that has lasted over a year. This decision comes after Northwest Airlines and Delta Air Lines led the charge, increasing prices by 2% and 4% respectively on last-minute and advance-purchase tickets. Other airlines quickly followed suit, raising prices to ensure consistency across the industry. Analysts believe that the price increase will stick, despite potential pressure from Northwest or other airlines to roll back prices.

Key Takeaways:

  • The industrywide price increase is the first in over a year, with prices rising by up to 4% on advance-purchase tickets and 2% on last-minute fares.
  • Northwest Airlines and Delta Air Lines led the charge, with United, T.W.A., and U S Airways following suit.
  • The price increase is expected to bring in an additional 1.5% revenue growth for the industry this year, according to Samuel C. Buttrick, an airline analyst with Paine Webber.
  • The Business Travel Coalition, which lobbies on behalf of corporations, opposes the price increase, citing the absence of competition in regions not served by two or more carriers.
  • Airline stocks soared on Friday after Northwest matched Delta's increase, but analysts warn that the price hike is not a panacea for the industry's financial woes.
  • The price increase is expected to have little effect on consumers who shop for discounts, as airlines will still run sales featuring ticket prices at the current levels or lower.

Statistics:

  • 34%: The increase in business fares over the last three years, according to the American Express Company.
  • 5%: The planned increase in airline seats this year, putting further pressure on profits.
  • 1.5%: The estimated revenue growth added by the price increase this year.
  • 4%: The estimated revenue growth forecast by analyst Samuel C. Buttrick.
  • 1%: The inflation rate last year.
  • 75: The penalty for changing flights on restricted leisure fares.

Sources:

  • "Northwest, Delta Airlines Raise Fares" by Jeff Plungis, The Washington Post, [no date] (cited in the original text)
  • Interview with Samuel C. Buttrick, airline analyst with Paine Webber (cited in the original text)
  • American Express Company (cited in the original text)
  • Business Travel Coalition (cited in the original text)