Airline mergers push fares higher

Airfares are on the rise as airlines keep a tighter rein on flights and seats – and that rise could accelerate if industry merger efforts bear fruit.

The average cost of airline tickets in the U.S. was up 10.2 per cent last month compared with a year ago, according to the Bureau of Labor Statistics, as airlines struggle with surging fuel prices and a softening U.S. economy. Over the same period, overall inflation rose 4 per cent.

Already this year, most of the more than a dozen price-increase attempts have been matched by rivals. UAL Corp.’s United Airlines Thursday introduced a fare increase of as much as 5 per cent on domestic fares. Competitors quickly followed. On Monday, Delta Air Lines Inc. raised its fuel surcharge by as much as $20 on each leg of domestic fares, pushing its round-trip fuel surcharge to more than $100 on some domestic routes.

Many in the industry hope mergers can eliminate seats and competitors and give airlines even greater pricing power. UAL is in deal talks with US Airways Group Inc., according to people familiar with the matter. UAL had previously tried to reach a deal with Continental Airlines Inc., but the latter carrier said Sunday it wasn’t interested in mergers at the moment. UAL’s merger efforts follow Delta’s deal to acquire Northwest Airlines Corp.

Airlines say fare increases and other charges – such as fees for on-board services such as meals or for checking a second suitcase – are the only means left for airlines to stanch widening losses after years of other cost-cutting.

”The low-hanging fruit is gone,” said David Castelveter, a spokesman for the Air Transportation Association, an industry group. ”Carriers now have to go for the high-hanging fruit, which includes higher prices.”

Between mid-April 2006 and last week, the average low-price round-trip ticket from Atlanta to Chicago bought at least seven days in advance climbed by 23 per cent to about $541, according to data compiled by Farecompare.com. The average fare between Boston and Los Angeles climbed by 39 percent to about $458. But the price of jet fuel during the same period soared by 70 percent over the same period, according to the federal Energy Information Administration.

Until recent months, fare increases were more modest. Even as oil prices began their march toward $100 a barrel and higher four years ago, airlines feared higher fares would drive away passengers. Healthy discount airlines also proved ready to undercut them.

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