Why The Latest Airfare Hike Will Not Be The Last
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Airlines did not wait long after the new year to raise their prices. The first hike was initiated by Delta, which upped its fares by $6 across the board (for round trip flights). Other carriers quickly followed suit, and by the first week of January, fliers were paying $6 more per trip not only on Delta, but also on United, Southwest and American.
Fares already increasing in 2016
Airlines watch each other’s pricing closely. The early January hike included most of the industry’s biggest players. This is not always the case. In fact, often, price hikes don’t stick, and the airline that tried to increase its fares eventually lowers them again. When JetBlue tried another $6 increase in early February, none of the other airlines followed suit. Once it was clear that it did not have any followers, ‘Blue returned its prices to their pre-hike levels.
When JetBlue tried again earlier this week, the three legacy carriers copied its move and increased their fares by $6. The hike even went across the border with both WestJet and Air Canada also raising their prices.
Fare hikes and record profits
Every major airline in the U.S. has increased its prices by at least $6 so far this year, and legacy carriers have participated in both hikes, raising their fares by $12 total. Many fliers have been dismayed by these hikes because airlines are announcing record profits for 2015 at the exact same time that they are making tickets more expensive.
On one hand, the incremental increases might not seem like they are that bad. What’s $6 on a $300 or $400 fare? On the other hand, travelers are very wary of such nickel and dime tactics in the age of a la carte pricing. Also, plenty of people are of the opinion that low oil prices and high profits mean that fares should be dropping instead of rising.
Finding the sweet spot
Airlines are simply trying to find the sweet spot where fares are at the maximum acceptable level for fliers. If the hikes go too far, people will start canceling flights or deciding not to travel at all. This is why airlines seem to be sticking with cautious incremental increases (two $6 hikes instead of one $12 hike).
Unfortunately for travelers, it seems like the only way to stop the upward trend is to stop booking flights or to avoid the market rate by seeking out promotional sales on airline websites or from other sources.
READ MORE: Airlines Will Report Record Profits for 2015
Actually, for many fliers, the most important pricing moves of 2016 will not come from these industry-wide baby-step hikes, but from fare competition on particular routes. For example, carriers in Houston and Dallas have lowered their fares to better compete with Southwest and with ultra-budget airlines such as Spirit. People flying on American or United out of these Texas cities may be seeing noticeably cheaper fares, especially when low-cost carriers are serving the same route or the same city pair.
For fliers on routes where demand is higher than supply and low cost carriers are not there to offer competition, fares are already high and likely to get even higher this year.
Airlines will probably continue with the small hikes until they reach the maximum acceptable price levels. This upward trend should continue even if oil prices continue to fall.
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