David Grossman, writer of the Business Traveler column for USA Today, offers three reasons why airfare will continue to rise in the near future.
- Capacity cuts and rising demand
- Prolonged period of higher oil prices
- Changing business model for low-cost airlines
Of particular interest to me was this nifty little stat:
United Airlines’ average fare for the first 9 months of this year is up 25% vs. a year ago.
That helps to explain UA’s healthy profit last quarter, and I can affirm that the base fares I paid to travel between Philadelphia and Southern California this year have been much higher–not always 25% higher because I generally have flexibility when I travel (though my Thanksgiving airfare was over double the price I paid the previous year), but the days of the 14-day $279 a/i BUR-PHL T-fare appear to be long gone.
But returning to Grossman’s list, I think he’s spot-on on all three points. I won’t regurgitate his analysis here, but I was particularly interested in Grossman’s third point: that low-cost carriers like Southwest just aren’t the same. First, it is a fallacy that Southwest fares are "always the lowest" because usually the legacy carriers will match WN’s leisure fares and special promotions. Second, with the AirTran acquisition, Southwest is looking more and more like a hub-and-spoke carrier–and has graduated beyond an exclusive 737 fleet! Finally, with Southwest (and Virgin America’s) expansion to "hub" airports, cost savings realized from operating out of under-utilized airports will diminish and further congestion may result.
The bottom line is that airfares are going to continue to outpace inflation. While we’ll still be able to snag some great deals from time to time, the era of $200 transcons may join other bygone memories of the airline industry like smoking and regulation.
I absolutely agree with the rise in airfares. The jury is still out in my mind about the the AirTran acquisition, though. Southwest basically bought entry into Atlanta, and I’d be willing to wager they might eliminate the 717 fleet over time. Also, we might actually see more aggressive fare matching by all carriers now that AirTran markets will be Southwesticized. Yes, many match AirTran fares currently, but it seems like the majors are more quick to respond to Southwest’s promotions. 2011 is going to be a very interesting year!
There are still cheap fares to be had, the key is just finding them. I will say that for me, there has been a huge drop in prices to DEN compared to when I was flying out here two years ago