Latest Airline Fare Hike Unravels

Posted Mar 29th 2011 12:00 PM

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United Continental

A $10 domestic fare hike, launched last week by United Continental Holdings, has fallen apart after the nation's low-cost carriers failed to match several major U.S. airlines.

The collapse marks the second time in a month that the major airlines withdrew a domestic fare increase, following six successful attempts since the beginning of the year. Analysts say the pullback may be a temporary sign that advance sales are starting to slow.

"It's also a sign of possibly reaching sort of that saturation point for consumers, at least for the short term, until consumers get really serious about shopping for the late spring and early summer," said Rick Seaney, founder and chief executive of Farecompare.com.

The fare hikes have been driven largely by the skyrocketing price of oil, which hit $105 a barrel in recent days, due to the Libyan civil war and political unrest in other parts of North Africa and the Gulf. Libya only supplies 2% of the world's oil supply, but the violence has led to increased speculation by investors.

Fuel has historically been one of the largest expenses by a commercial airline and several carriers have announced plans to cut capacity growth or raise fees in response to increased fuel costs.

United Continental, the parent company of United Airlines and Continental Airlines, initiated the $10 fare increase last week, and rival Delta Air Lines responded with a staggered series of fare increases ranging from $6 to $14 round trip, based on the length of the flight.

Delta rolled back that increase, but then matched the $10 fare increase along with US Airways. However, low-cost carriers like Southwest and JetBlue Airways, failed to jump in.

The low-cost carriers have raised some fares in recent months, but have largely nixed several of the domestic fare hikes led by the traditional carriers like American, United Continental and Delta.

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