USA: US Airlines Increase Fares By $3

Major US airlines have raised fares in the first industry-wide increase since June, moves that may offset increasing staff costs but draw the ire of customers.

Fares increased USD$3 one-way for US domestic flights on American, Delta, JetBlue, Southwest and United.

The increase comes at a precarious time for the industry, which is under investigation by the US Justice Department for potentially conspiring to limit flights and keep fares high. The airlines have denied collusion.

The federal agency declined to comment on the fare rise.

Airlines have long monitored each others' prices and quickly responded to changes.

Carriers submit fares to the Airline Tariff Publishing Company, a distributor that has a product for price tracking primarily used by industry insiders.

This week's fare increase began with changes by Delta on Monday, the airline confirmed. Southwest was the next to follow suit.

"The industry has never met a Southwest fare increase it didn't match, for as far back as our records go," JPMorgan analyst Jamie Baker said in a research note. "Just as Southwest often plays the spoiler role, competitors consistently follow Southwest's lead to the upside."

US airlines regularly adjust their fares, but an industry-wide match is far less common. A USD$3 rise occurred last in June when Southwest also matched a change by Delta, Baker said in a prior note.

CONSUMER IMPACT

Tuesday's news is another indication that airlines are not translating savings from a year's decline in fuel prices into lower ticket prices, a break from a decade ago when more airlines vied for customers.

Consumers will have little choice but to accept the increase because the five airlines control more than 80 percent of the US travel market, following four high-profile mergers.

The price increase is unlikely to decrease demand for corporate travel, as employers accept higher fares as the cost of doing business, industry consultant Robert Mann said. Airlines are betting the rise will boost revenue even if leisure travel dips, he said.

However, competition is still high on the busiest US routes. The lowest leisure fares were on average 24 percent lower from a year earlier for the top 1,000 domestic routes, according to a late December report by travel consultancy Harrell Associates.

Mann said the price increase will help the airlines manage growing staff costs and prepare for new contracts with wages likely to increase.

He said it may have the side effect of leaving planes emptier, a plus when winter cancellations force airlines to rebook customers onto other flights.