How to fly now without going broke
Another weekend, another across-the-board increase in airfares.
Well, not quite.
The 13th airfare increase this year was announced last Saturday. This one was kicked off by American Airlines that raised fares $20 roundtrip on most of its domestic routes. And while Continental, United, Delta, and others joined in the increase, Continental on Monday changed its mind and rescinded the increase. Competitors followed suit.
Which is why buying airline tickets on a weekend isn’t a good idea. That’s when airlines try out fare increases. If competitors don’t go along, those prices are often rolled back on Monday or Tuesday.
Despite the rollback this week, airfares, fees, and airline penalties (for changing a ticket, for example) are creating major sticker shock.
The news has been relentless the last several weeks: American Airlines announced it’ll charge $25 to check a single bag unless you’re a member of an “elite” level of its frequent flyer program. United, American, Continental and others announced a cutback in service to some cities and a reduction in staffing and airplanes, even as most airlines continue to fill a record 85% or more of their seats. Fuel surcharges by everyone from Air New Zealand to Lufthansa hike the cost of flying as much as $120 round trip.
What can you do to fly without going broke?
Here’s what I get asked all the time: Should I wait to buy a ticket for travel later this summer when I might catch a sale?
The simple answer is, “No.”
In fact, don’t wait to buy your ticket for Thanksgiving or December holiday season. If you have to fly off to college in late summer and know you’re going to want to return home for Thanksgiving, buy that ticket now. Oh, and buy your return ticket to school, as well.
The reason is simple: Oil.
The breathless rise in the price of a barrel of oil has thrown airline budgets out the window. Airlines including Delta, United, and Northwest that emerged from bankruptcy over the last year had a worst-case-scenario of oil selling at $50-$60 a barrel for the foreseeable future. Today, as I write, a barrel costs more than double that.
So, you ask, why don’t the airlines simply raise fares instead of bombarding customers with all kinds of fees such as $2 for checking a bag curbside at airports, $25 for checking a bag, $10 for booking a ticket through a telephone reservationist, and $15 (in the case of Northwest) for preferential coach seating 24 hours before a flight departs? (I could go on with other price hikes on services such as ticket change fees and unescorted child passenger fees, but you get the point.)
Airlines partly justify some of the fee hikes because they apply to passengers who need “special” service, such as changing a ticket, having a child traveling alone escorted by an airline staffer, and so on.
But the bigger reason is that many customers shop for airline tickets by visiting third-party web sites such as Expedia, Travelocity and Orbitz to compare prices. By adding fees and fuel surcharges, they can keep their fares somewhat competitive with lower-cost carriers such as JetBlue and Southwest (even though Southwest does not permit other sites to list its flights and fares)
If a so-called “legacy carrier” such as American or United had to pile its fees and surcharges onto the basic fare, the contrast with a low-fare competitor might be drastic enough to discourage customers from even considering them.
Why can airlines like Southwest and JetBlue undercut legacy competitors?
The answers are many and varied, but take a quick look at Southwest. It only flies one kind of aircraft, the Boeing 737. That means it doesn’t have to train mechanics to handle different equipment and it doesn’t have to stock a wide array of extra parts. Southwest and JetBlue fly point to point, which means they can cherry pick routes where they think they can obtain a competitive advantage. They have highly motivated employees who have not experienced cuts in their pay and retirement benefits thanks to bankruptcy proceedings. And motivated employees seem to turn planes around at gates faster than others, meaning planes spend more time in the sky earning revenue.
In the case of JetBlue, because it’s a young airline, it doesn’t have an army of former employees drawing pensions. And Southwest has an even bigger advantage: For years, it’s been hedging its fuel prices by buying futures—contracts that lock in the price of fuel far into the future. Legacy carriers that have been limping along haven’t had the capital to do that to the extent that Southwest has.
For example, Northwest Airlines has hedged about 30% of the fuel it will buy this year; Southwest has hedged about 70% at the incredibly favorable price equivalent to $60 a barrel. Whoever at Southwest took the risk of hedging such a large amount of fuel years ago deserves a whopping bonus. (Remember, a hedge can hurt if you lock in a price for a few years down the road and the actual market price--when it comes time to take possession of that fuel--is lower than the hedged price.)
Southwest is one of the few airlines that’s still posting profitable quarters. But if it hadn’t hedged such a large amount of fuel at such an attractive price long ago, it would be in the red right now like most of its competitors.
So there you have it: The Americans of the world can’t afford to simply keep jacking up ticket prices every week without losing a competitive advantage. (By the way, there have been 17 attempts to raise ticket prices so far this year; 12 of them have succeeded.) All airlines are going to continue trying to raise ticket prices steadily for the rest of 2008.
It’s worth keeping in mind that the rise in the cost of an airline ticket has paled in comparison to inflation and the rise in the cost of other goods and services. Flying is still generally a huge bargain. (Even if it does cost $500 to fly round trip between the East and West coasts, try pricing a car or train trip!) But if you have any firm travel plans in the next 300 days, buy your ticket now. While there may be the occasional sale, prices are going mostly up. Airlines are losing hundreds of millions of dollars right now, and short of charging a per-flight fee for your seatbelt or oxygen mask, they have no choice but to increase fares in order to stay aloft.
