How Airlines Plan to Slowly Raise Fares
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Airfares are now at their lowest point since 2010 (when inflation is taken into account). Even though fuel prices are now rising, competition between airlines has kept this downward price trend intact. The result: this will be one of the cheapest summers for flying in a long time.
While fliers can expect to be able to find low fares over the summer months, especially if they keep an eye out for “flash sales,” airlines are starting to think more long term. Based on recent announcements about growth plans, it appears that airlines are looking for ways to bring fares back up, slowly, over the next year or so.
Why do airlines want to do this?
Investors and shareholders are impatient with carriers, because low fares mean that they are not making as much revenue as they could be. Now that fuel prices seem to be rising again, the revenue figures could become even more modest over the summer. Share prices for most major carriers have fallen over the past month or so because investors are unhappy with this current low fare-low revenue trend.
READ MORE: Which Airlines are Winning So Far in 2016?
All three legacy carriers have recently made announcements that are meant to curb investor fears. The flying public won’t notice any changes right away, but if the airlines follow through with their recently-announced plans, fares could rise by mid-2017, making flying next summer a (much?) pricier proposition.
So what are they planning to do exactly?
Delta, American and United will try to increase fares by slowly putting the brakes on their current growth. Delta, for example, grew by 5.4 percent during the first quarter of this year. Its growth will continue, but its revised plans show that it only wants to expand by 2.5 percent during the fourth quarter of this year. American Airlines, meanwhile, has cut its international growth plans for the year from six percent growth down to 2.5 percent. United has also followed suit and announced more modest expansion plans.
If growth slows, eventually demand will catch up with capacity and airlines will be able to increase fares without worrying as much about getting undercut by competitors. Again, this process will take place slowly, so people with summer travel plans won’t need to run out now and get tickets if they want the best deals.
Airlines: no changes this year
In fact, American Airlines has already told investors not to expect much from this year. Scott Kirby, American’s president, said that he expects “the revenue environment to remain challenging in 2016.”
He also said that his airline's plans to increase fares have been “pushed into next year."
AA CEO Doug Parker, however, was upbeat, saying investor fears had allowed the airline to buy back some of its stock, which it plans to profit from in the long term. "The market does not seem to fully appreciate the transformation that has taken place in this industry."
That "transformation" will eventually lead to higher fares, but not before fliers have gotten to enjoy cheap flights during the summer of 2016.
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