Some find airfares worth the wait
Posted on Sunday, November 30, 2008
CHICAGO — For the first time in memory, airfares are falling rather than rising as the Christmas travel season approaches.
The phenomenon means that many procrastinators are paying much less for their flights than early birds who locked in pricey tickets months ago when airfares seemed certain to rise in advance of the holidays, as the prices typically do.
Farecast, a unit of Microsoft Corp., says the average airfare has dropped by about 17 percent since July, according to an analysis of 100 U. S. travel destinations.
Analysts view the fare reductions as an attempt to woo back consumers who are putting off trips in response to the unfolding economic crisis.
The downturn is emerging as the biggest threat to the industry since it was buffeted by surging jet fuel prices last summer. Just as retreating fuel prices seemed to be a cause for celebration, demand for seats fell away.
To bolster profits, the airlines shrank U. S. operations by about 10 percent this fall, the equivalent of grounding a major airline. Analysts initially had predicted that the capacity cuts — about 200, 000 seats per day — would keep planes full and prices sky-high for year-end travel.
But carriers are suddenly struggling to fill seats as consumers spooked by market and economic turmoil trim their spending on everything from Christmas gifts to vacations. Analysts say the steep falloff in travel over the past six weeks caught carriers, hotels and car-rental companies off guard.
Airlines are responding with deep discounts. Southwest Airlines last week extended a three-day sale through Dec. 8, with some tickets priced at $ 90 round trip. United and American Airlines also announced sales for travel in December and into the new year.
“It’s a benefit of the economic meltdown,” said Rick Seaney, chief executive of FareCompare. com. “People are pulling down demand, deciding not to bring kids home or deciding to drive. Even with big cutbacks [by the airlines ], there are still empty seats.”
Syndicated travel columnist Ed Perkins said airlines’ only choice is to cut the price for days when planes aren’t near capacity.
“It’s the old law of supply and demand working pretty quickly and obviously,” he said.
There are some exceptions, however. Airfares remain high to some destinations, including New York, and may have increased during peak travel days. Today is one of those days, as are Dec. 20 and Dec. 26-28, according to Best-Fares. com.
Airlines may have alienated passengers by ratcheting up rates and pushing through a host of new fees for services that previously were offered for free, such as checked baggage. During the first seven months of the year, carriers attempted 22 price increases, 15 of which were successful, according to FareCompare. com.
“The airlines made no friends with anybody this summer,” said Tom Parsons, chief executive and founder of BestFares. com. “I think a lot of consumers are just frustrated.... They’re going, ‘ Guess what ? Why don’t we just drive ?’”
Carriers raised holiday fares in September and early October, thinking their capacity cuts would spur a shortage of airplane seats for Thanksgiving and Christmas, Parsons said. But the move backfired. They priced themselves out of the market for many regular customers.
Now analysts say airlines may be attempting to shore up leisure travel to make up for the loss of deep-pocketed international and business travelers, who often pay as much as four times what vacationers pay. The International Air Transport Association reported this month that first-class and business-class passenger traffic declined globally by 8 percent in September compared with a year ago.
The association blamed turmoil in the financial sector and a slump in manufacturing confidence in the United States, Japan and Europe. It predicts “significant falls” in first-class and business travel as the economy slips deeper into recession.
JPMorgan analyst Jamie Baker, in a recent Wall Street note, said airline revenue could fall by as much as 11 percent, eclipsing the 7. 5 percent decline in 2002 after the Sept. 11, 2001, terrorist attacks. A fall in 2008 of that magnitude could come if nominal gross domestic product dropped 4 percent to 5 percent, he predicted.
“Nobody is bullish on demand,” he wrote. “The only question is how bad it gets.”
But Baker said airlines could remain profitable next year if oil prices stay between $ 50 and $ 70 per barrel, even with big declines in passenger travel.
Profit will depend on fare prices, however. With the economy in meltdown mode, Vaughn Cordle, chief analyst with the research firm AirlineForecasts, predicted that ticket prices could drop at least 7 percent on average next year.
“They’ve got to bring down fares,” he said. “It’s a great time for consumers.”
Airlines have to be careful about slashing prices too much, said David Castelveter, spokesman for the Air Transport Association of America, an industry trade group.
“We don’t know where the price of fuel is going to go,” he said.
FEEDBACK:
Something to say about this topic? Submit a Letter to the Editor online
