Northwest's decision toStar-Bulletin news services
raise prices may trigger the third
wave of increases this year
ST. PAUL, Minn. -- Northwest Airlines Corp., the No. 4 U.S. airline, raised its domestic leisure fares today in a move expected to yield the third industrywide increase this year, an online fare-tracking company said.
Northwest increased the fares by 4 percent to match those set by Continental Airlines Inc. on Friday, according to Tom Parsons, editor of Bestfares.com in Arlington, Texas. The Northwest price increase came after four of the top six carriers had first raised, then rolled back, similar increases in the span of three days.
The move by Northwest, long the contrarian when it comes to industry pricing activity, will most likely lead to 1999's third industrywide fare increase as the four airlines are likely to follow suit either later today or tomorrow, Parsons said. That would mean an 11 percent surge in domestic leisure fares for the year to date.
"When Northwest gives their blessing, every Tom, Dick and Harry will scramble to push those fares back up again," Parsons said. "(Northwest) is great at head games."
Still, it's possible that St. Paul, Minn.-based Northwest could wait until the other airlines -- No. 1 UAL Corp.'s United Airlines, AMR Corp.'s American Airlines, US Airways Inc. and Delta Air Lines Inc. -- match its fares, then roll back the prices, he said.
Northwest was the only one of the other five carriers to keep prices in check following Continental's increase last week.
More than a dozen attempts to raise fares last year failed because Northwest failed to go along, Parsons said.
Business class tickets won't be affected by the price increases, and a 3 percent rise in leisure and business class fares in Canada is still in place, he said.
Analysts say the lack of a broad-based fare increase in 1998 and recent signs of falling revenue trends at major carriers have set the groundwork for another increase.
Moreover, the industry is coming off four years of record profits and dealing with fallout from last year's labor problems and foreign economic turmoil.
Some say there is pressure to maintain profit levels and airline stock prices.
A rebound in the price of jet fuel, the industry's second-largest operating expense, boosts the likelihood of another fare increase.
Although the rally eased last week, fuel prices remain nearly 40 percent higher since mid-February.
"The industry will most likely raise fares to try to offset costs," said Goldman Sachs analyst Glenn Engel.
John Armbrust, a Florida-based aviation consultant and publisher of "The Armbrust World Jet Fuel Report," estimates that each penny increase in fuel prices adds about $25 million a year to a major airline's costs.
But airline industry officials argue that the solution to higher fuel costs is not as easy as raising prices.
The Air Transport Association, which represents major U.S. carriers, says each 1 percent increase in ticket prices results in a one percent decrease in passengers. "It's just not always as simple as raising ticket prices when fuel goes up, because it could result in lost passengers," said ATA spokeswoman Diana Cronan.
With travel industry groups predicting a strong 4 percent increase in U.S. holiday travel this June, July and August, many believe the demand will sustain another price increase.