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July 3, 2014

Higher airfare, crowded planes likely to linger after summer

WASHINGTON — Air travelers are paying more to fly in the U.S. this summer on crowded planes as carriers keep capacity tight, conditions passengers will have to get used to beyond the vacation period.

Carriers are offering fewer flights, have dropped routes to certain cities and in some cases are flying smaller planes on trips in the U.S. amid strong demand, helping to boost summer fares 4.5 percent from a year ago.

An average domestic round trip fare has climbed to about $399.48, based on data from Travelocity.com. An international ticket is about 2.3 percent more than a year ago, at $991.82.

This is the busiest season for U.S. carriers, with passenger traffic at its heaviest in July, followed by August, then June, according to data compiled by Bloomberg. Airlines for America, an industry trade group, forecast that travel on U.S. carriers this summer will be the highest in six years. But don't expect seats to open up or fares to fall much once summer ends.

"Unless and until we see meaningful expansion among existing airlines or new competitors successfully launch service, we will continue to see airfares increase and flights remain crowded," said Henry Harteveldt, a travel industry analyst and founder of Atmosphere Research Group in San Francisco.

About 210 million passengers, or 2.28 million a day, will travel on U.S. airlines from June 1 to Aug. 31, Airlines for America said. That's up 1.5 percent from 2013. More Americans will also hit the road over the five days around the 4th of July holiday --34.8 million, according to AAA, the biggest U.S. motoring organization, up 2 percent from last year.

"For people who want to travel long distances reasonably quickly, air travel is really the only viable option," in the U.S., which lacks an extensive high-speed rail network, Harteveldt said.

 An increase in summer travel reflects the economic recovery boosting consumer confidence and spending. Airlines too have rebounded from recession-era belt-tightening among travelers, posting record operating revenue last year, aided by almost $6.2 billion in baggage and reservation charges.

"This summer ticket season has been so strong there have been few fare sales," said Savanthi Syth, a Raymond James Financial Inc. analyst. "Demand has been strong and they are able to fill the airplane at higher price points."

Current strength in the U.S. market offset lower-than- anticipated results from routes across the oceans last month, Delta Air Lines Inc. said yesterday. Increased competition for overseas flights has led to overcapacity, thereby reducing the average fare per mile, Delta said.

After several mergers in recent years, including American Airlines with US Airways, and Delta with Northwest, there are fewer airlines operating today and they're also pulling out of smaller hubs, further reducing options or forcing passengers to take multiple flights to a destination.

"The airlines have finally figured out that the way for them to reach profitability is to make it more trouble to travel and raise fares," said Greg Raiff, chief executive officer of Private Jet Services, a corporate jet services firm. "Paying more is the new norm."

Nine U.S. airlines are holding down growth in seats and flights, adding about 0.9 percent capacity on domestic routes in June from a year ago, 1 percent this month and 0.3 percent in August, according to Dan McKenzie, a Buckingham Research Group analyst in New York. Better matching demand fills planes and generally helps carriers raise fares or limit the number of low- price tickets sold.

An average 85.3 percent of seats were filled on Delta's domestic routes this year through June, up 2.2 points from a year ago. American, United Continental and Southwest Airlines each reported a higher average number of seats filled this year through May, the most recent data available.

"It's the perfect storm for higher ticket prices -- less seats coupled with higher demand, especially around high peak travel periods," said Courtney Scott, senior editor for Travelocity. "That's really the time when we see these higher prices."

And while most airlines are buying new planes, most of them are being used to replace less fuel-efficient, older models instead of expanding fleets and flights.

In addition to higher fares from airlines this summer, the Transportation Security Administration will increase the Sept. 11 security fee to $5.60 each way on July 21. The fee currently is $2.50 for a nonstop flight and $5 on a trip with connections. Under the new fees, trips with lengthy stopovers -- more than four hours between two domestic flights -- will see larger increases.

 

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